- No strategy to support export and remittance issues
The Rs14.460 trillion federal budget of Pakistan has been presented in the National Assembly; which is now ranked 47th on the world economic map. The budget apparently did very little to ease the ever-increasing economic pressures on the middle class.
It is business as usual in the nature of fire-fighting marked by the absence of any strategy to shore up falling export earnings and worker remittances or undertaking import substitution.
Exports declined by 9.9 percent during July-March to $21 billion compared to $23 billion in the same period last year. Simultaneously, remittances decreased from 10.8 percent to $20 billion, down from $23 billion. Imports fell 25.7 percent to $43.7 billion from $58.9 billion, primarily because of policy tightening and other administrative measures. As a result, the country’s trade deficit significantly shrank to 6 percent of GDP, compared to 10.4 percent last year.
However, the external sector pressures continue unabated, with an import-oriented, foreign debt-driven GDP growth hitting a saturation point, as evident from donor fatigue and shortfall in estimated debt inflows. And the more the political economy sinks into a quagmire, the more it creates divergence of views between Islamabad and the International Monetary Fund (IMF).
High inflation has become a permanent feature where the economy is growing or shrinking, whether the demand goes up or is sought to be depressed by monetary policies.
Inflation was officially recorded at 28.2 percent for 11 months of FY23, against 11 percent in the same period last year and the annual official target of 11.5 percent because of a sharp depreciation of the rupee and global supply shocks, resulting in costly imports, says the Economic Survey document.
Among other factors, the Survey concedes that lingering political instability, import controls and tight monetary policies caused the country’s prevailing economic downfall.
In FY23, the economy grew by 0.29 percent against the projected growth of 5 percent, owing to lower than estimated growth in the three broad segments of the economy.
The actual performance against targets (in bracket) are as follows: agricultural growth by 1.5 percent (3.9 percent), services by 0.9 percent (5.1 percent) and industry contracted by 2.4 percent (5.9 percent). Super floods have undoubtedly contributed to the economy’s slowing down, disturbing supply chains and causing immense damage to crops and livestock. And it may be noted here that addressing stagflation is far more challenging than the usual cyclic crisis.
In the case of doing business as usual (without reforms), the economic growth would be 3.5 percent even after 12 years,
The NEC approved the underlying concept of Pakistan Vision 2035 while calling for immediate preparation of a transformation plan with a focus on five 5Es. The concept paper expects economic growth to increase at an annual average of around 6 percent up to 2035, with growth acceleration in all sectors. By changing the path of economic recovery, the unemployment rate can be reduced from 9 percent to 5 percent and the poverty rate to 15 percent from 40 percent.
To achieve sustained high economic growth over a significant period lasting at least two decades, Pakistan must allocate more resources to developing human capital and adopt productivity-enhancing measures. But in the past, all long-term plans have been shelved and replaced by a three-year IMF stabilisation program.
The Government has set a GDP growth target of only 3.5 percent for the next financial year. The revenue of FBR is expected to be around Rs7,200 billion, in which the share of provinces will be Rs4,129 billion. The non-tax revenue of the federal government is expected to be Rs1,618 billion out of which the net revenue of the federation will be Rs4,689 billion. The total expenditure is estimated at Rs11,090 billion. The expenditure under PSDP is likely to be up to Rs567 billion. The total expenditure of the civil government will be Rs553 billion, Rs654 billion on pension, Rs1,093 billion on subsidies and Rs1,090 billion on grants. If we accept the growth rate of 0.3 percent, as the current Pakistan Economic Survey claims, it didn’t feel like that over the last year when inflation broke all records and currency value nose-dived, and the unemployment level hiked.
On the remittances side, the money sent by overseas Pakistani workers dipped month-on-month by 4 percent and 10 percent year-on-year to $2.1 billion in May.
The latest data released by the State Bank of Pakistan (SBP) showed that the country lost $3.7 billion in remittances during the first 11 months of FY23 mainly due to a widening exchange rate gap.
The inflows tumbled by 12.98 percent to $24.831 billion in 11MFY23 compared to $28.489 billion in the same period of last fiscal year. The country has been struggling hard to get a $1.1 billion tranche from the IMF for a year but the shrinking inflows of remittances could make it more difficult for the country to manage the external account with poor foreign exchange reserves of less than $4 billion.
Pakistan received $2.102 billion in May compared to $2.198 billion in April. It received $2.346 billion in May last year.
The biggest inflow was from Saudi Arabia but declined by 16.3 percent to $5.924 billion. The second highest inflow was from UAE which was around $4.321 billion but it also showed a decline of 19.2 percent. Pakistan received the third largest amount of remittances from the UK which was $3.718 billion; it shows a decline of 8 percent compared to the last year.
Other significant inflows were from the USA with $2.824 billion (0.9 percent up), GCC countries with $2.918 billion (11.5 percent down) and $2.839 billion from EU countries showing a decline of 7.7 percent.
The roaring inflation of 30 percent and more, with fixed income and hard-pressed or no avenues at all for supplementary support, it managing middle-class household budgets harder. This has forced the middle and lower middle class to cut down on spending, cutting on comforts moving to relatively economical housing, shifting children to cheaper schools, limiting health spending, and cutting on comforts. The kitchen budget has already shot through the roof, and random anecdotal evidence suggests a fall in nutrition intake by children and adults of the middle class for want of affordability. Many have to borrow to shoot their living standards and end up deeper in debt.
Despite distress and frustration, the chances of public resistance to government budgetary steps or their active engagement in the public debate over policy options are remote.
The relief granted to civil servants by upward salary revision will benefit a tiny minority. Salaries and pensions are proposed to be revised up by 30 percent and 17.5 percent respectively. It will cover, at best, under 1 percent of the middle class. Only government officers of Grades 17 to 22 are included in the middle class. Those in Grades 1-16 given a 35 percent salary increase are at the lowest rung of the middle class or poor.
Collectively all three million government employees are a mere 2 percent of the 241 million strong population of Pakistan. The rest of the working population works in the private sector and is at the mercy of employers, not necessarily good paymasters.
There is a common perception that this Budget is designed to appease the IMF, filled with arbitrary figures and lacking substance. There is a significant increase in allocations for defense and foreign debt repayment; whereas the salaries have not been adjusted adequately to match the current inflation. On the other hand, pensioners were offered only a meager increase, while industrialists and capitalists were granted extensive privileges across various sectors.
The author, Mr. Nazir Ahmed Shaikh, is a freelance writer, columnist, blogger and motivational speaker. He writes articles on diversified topics. Mr. Shaikh can be contacted at nazir_shaikh86@hotmail.com