One of the three top international credit rating agency Moody Investor Services, in its periodic review of Pakistan’s economy, has referred to alarming macroeconomic imbalances including the weakness of external sector, mounting budget deficit and record fall in foreign direct investment. The report forecast the fluctuating foreign exchange reserves and continued balance of payment crisis. The present government after assuming power has vowed to fix the economy. However, the budget deficit rose to Rs.345 trillion, almost 9 percent of the size of nation’s economy. The debt liabilities have shot up to Rs.40.2 trillion. The Prime Minister has always criticised the previous government for lavish spending of foreign and domestic borrowings and accumulating the public debt of Rs. 30 trillion, but in the first year of his tenure, the present government has added Rs.10.2 trillion to the public debt.
The rupee has lost its value by 32 percent to Rs.160 to the US dollar. The commerce ministry expects $5 billion increase in exports and if the target is achieved, it may contribute to relative exchange rate stability. But the State Bank of Pakistan (SBP) annual Financial Stability Review, which was released the other day, tells a different story. It predicts further events of rupee depreciation within the next 6 months. The SBP financial review highlights events of foreign exchange risks; heightening of balance of payment pressure that foreign exchange; widening of fiscal deficit; and rise in inflation rate. It vindicates Moody’s assessment of external balance vulnerability and other deteriorating macroeconomic indices.
Failure to improve the business environment took a hevy toll on foreign direct investment as it fell to record low of $73 million in the last fiscal year, showing a decline of 59 percent as compared with FY 18. In their earlier reports both Moody and Fitch credit rating agencies had projected Pakistan’s ranking to B 3 negative and there are bold indications of further down grading.
Amid swelling fiscal deficit the documentation of economy drive is not smoothly moving forward. The talks between Federal board of Revenue and traders failed once again. The traders are still adamant to accept the CNIC condition for the purchase and sales proceeds of Rs. 50000 and above. They neither want income tax registration nor sales tax registration. These two measures are essential for the documentation of economy. The share of whole sale and retail trade is 18 percent in the national income accounting but its tax contribution is 0.88 percent. The credibility gap between the government and the traders on the issues of income tax and sales tax registration need to be bridged.
The trade bodies have all along expressed grave concern over the continued hiking of tariffs of energy inputs as it one of major factor responsible for the fall in domestic and foreign investment. It was a compelling reason for Pakistani entrepreneurs to shift textile units to Bangladesh although that country does not grow cotton crop. The only attraction was low electricity and gas tariffs. But in their home cotton growing country the electricity tariff is Rs. 27 per unit and gas price has been jacked up by over 200 percent. The export industries consume bulk of imported raw material and intermediate goods the prices of which are moving up due currency depreciation. No short term strategy and long term plan is in place for addressing the technological stagnation. The team of economic mangers comprising old faces of the previous governments have not put forward a vision of economy’s turn around except an interview by advisor on commerce and textile Abdul RazzakDawood expressing therein an otimism about this miracle to happen in 2020.