Prime Minister Imran Khan’s government has often blamed the economic turmoil in Pakistan on its predecessors and the coronavirus, in that order, and praised PM Khan for minimizing the adverse effects of both. PM Khan and his government economists have recently informed the Pakistani people and the world about the success of his government in navigating the economy.
In November, Imran Khan said in meetings with political and civil society leaders that the difficult phase of economic revival had ended and the economy had recovered. The following month, PM Khan declared that the Pakistani economy had been successful “What a turnaround”.
To be sure, the pandemic has indeed played a key role in pressuring Pakistan’s economy, which is contracting for the first time in seven decades. But the downward trend has been evident since mid-2018. GDP of Pakistan grew by 1.9% in 2019, down from a decade high of 5.8% the previous year when Imran Khan’s Pakistan Tehreek-e-Insaf came to power.
Pakistan observers in New Delhi suggest PM Khan’s proclamation of the economy may have jumped arms.
Not everyone in Pakistan outside of the government is convinced either. Like this opinion article on Dawn. “Whenever you hear the government declare victory on boosting exports, keep in mind that the trade deficit has grown faster than exports in the same July to December period,” commentator Khurram Husain warned of the government’s round of data on PM Khan’s claims of economic recovery.
Apart from that, Pakistan is also struggling to contain inflation which spiked to 10.7% in 2020, up from 6.8% in 2019 and 4.7% in 2018 when Imran Khan’s government was in power. The recent spike in food prices suggests that the upward trend is likely to continue.
Pakistan, in a desperate attempt to restrain food prices, has ended up aggressively importing essential goods such as wheat, sugar and canola in such a way that, according to a Bloomberg report earlier this month, the Port of Karachi has stalled.
“The result: Pakistan’s cement exports fell 18% to 633,431 tonnes last month, steeper than the 5% drop seen in November, amidst unavailability of berths for loading goods,” said the Bloomberg report.
The economy was also under pressure due to increasing debt stocks. At the end of September 2020, Pakistan’s total debt and liabilities totaled Pakistani Rupees 44,801 billion ($ 280 billion), an increase of PKR 245 billion over the three month period.
In addition, about 30% of Pakistan’s total debt originated from external borrowing and reflects an increase of $ 1.05 billion during the July-September quarter from the current fiscal. Pakistan needs to pay around PKR 1,200 billion to pay its current fiscal debt and liabilities.
Currently, Pakistan spends about a third of its total budget on debt repayments. Prime Minister Khan acknowledged the impact of the recent debt burden although blamed his predecessors. “Half of our taxes [the government] pooled into debt settlement for loans taken by the previous government, “he told reporters this month.
Quite a lot of PM Imran Khan’s efforts to construct the narrative around Pakistan’s economic turnaround have focused on a current account that has been in surplus for about five months to December, a rarity in a country dependent on stagnant imports and exports. PM Khan, for weeks, hailed the current account surplus as “good news” and spoke of last week’s ‘accomplishments’ as well.
However, economists have pointed out that the current account surplus is likely to be one of the positive consequences of the Covid-19 pandemic which has slowed economic activity and led to a decline in fuel demand in an era of low world oil prices. It also helps that travel restrictions around the world have hindered the flow of remittances via informal channels and forced overseas workers to use formal remittances.
But it is time for Pakistan to tighten its belt as it looks set to revive the International Monetary Fund’s $ 6 billion Extended Fund Facility (EFF). It came to a halt in February 2020 after the Covid-19 outbreak which gave PM Khan room to postpone tough decisions.
The first came on Thursday when the government announced plans to raise electricity rates by Rs1.95 per unit. Local media reports indicated that the government could also immediately withdraw PKR 150 billion worth of tax exemptions to the corporate sector.
PM Khan did not refer to the corporate income tax rates and exemptions at the launch of the ‘Raast’ digital payment system earlier this month. But he hinted at the need to expand the tax base. Of the 220 million people in Pakistan, the income tax paid by 3,000 people accounts for 70% of the collection, he said.
to request modification Contact us at Here or [email protected]