At a recent high-profile pre-budget seminar, PML-N leaders praised their government’s performance and criticized PTI’s performance over the past three years.
Before examining the veracity of PML or PTI claims, it would be helpful to briefly discuss the accuracy of the economic data. It can be safely assumed that the following data are reasonably accurate and easily verifiable: imports, exports, imports and fuel consumption, government revenue collection and expenditure, debt data, electricity production and sale, banking data and power generation. some manufactured goods. All other data – GDP growth, inflation, agricultural and animal production, output in the service sector and industry, wholesale and retail prices – are subject to a large margin of error, mostly unverifiable and very easy to tamper with.
GDP estimates are based on econometric models and assumptions and on mostly unverifiable data collected either through self-reporting by companies or from thousands of underpaid, incompetent and lazy low-level civil servants – daily, weekly or monthly forms filled out by these downs Senior officials are the most suspect. Therefore, one must take, with a big grain of salt, much of the claims made by politicians about GDP estimates and inflation. When a number has a decimal place trying to convey high precision, especially a GDP growth number, it should trigger red flags.
Another aspect that citizens should keep in mind when evaluating a government’s economic performance is that once an economic crisis hits, it takes at least 1 to 2 years for the economy to rebound. . All developing countries that have experienced a severe economic crisis have first had to go through a period of stabilization to emerge from the abyss before they could return to the path of growth. Pakistan’s experience over the past two decades – the three balance of payments crises, after the nuclear explosions and the end of the Musharraf and PML-N governments – clearly shows that growth does not resume until 1-2 years after the crisis. In this context, what about the demands of the PML-N during its five years in power?
Despite the “war on terror”, PTI dharna, and tensions with the establishment, the PML-N government did a good job of stabilizing the economy and pursuing reasonably prudent fiscal policy over the first three years. The tax-to-GDP ratio increased by more than 2.5% and the budget deficit was reduced from around 8% of GDP in fiscal year 12 to around 5% in the first three years. He accelerated CPEC projects that significantly contributed to increasing growth from less than 3% in FY12 to just over 5% in FY17. The good story , however, stops here.
The PML-N has pursued very reckless policies, especially in its last two years, which sowed the seeds of the 2018 collapse. It has foolishly followed a fixed exchange rate policy for five years. As a result, exports have stagnated and then declined over the past two years, and the trade deficit has increased dramatically to $ 37 billion in fiscal year 18. In its final year, the PML-N government has forced the State Bank of Pakistan to spend $ 8. -10 billion reserves to defend the fixed exchange rate policy.
PML-N’s development spending was unbalanced and based on reckless borrowing. He spent lavishly on highways and highways rather than on human development, and on the establishment of excessively excessive thermal production based on imported fuels rather than renewable energies (hydraulic, solar, wind). His spending was not driven by the priority needs of the economy, but by personal whims and lucrative projects – if the PTI account was to be believed. There is no doubt that Pakistan was facing high levels of load shedding. However, a smarter and more affordable policy would have been to manage the load and accelerate renewable energy projects (especially hydropower). All imported electric power projects are now a noose around Pakistan and a major cause of Pakistan’s economic crisis, due to high tariffs and payments for unnecessary capacity.
Despite the rhetoric, the PML-N did not pursue reforms related to civil service, fiscal management, energy, public enterprises and privatization, agriculture and water. As a result of inaction in these areas, the status quo has become more entrenched, making it more difficult for future governments to pursue reforms.
All of the good work and growth that the PML-N did in the first three years collapsed at the end of its term. Pakistan was facing a serious balance of payments crisis. Foreign exchange reserves had fallen to less than three months of imports and public debt had increased by 12 trillion rupees. At a minimum, rather than trumpeting half-truths, PML leaders should apologize to the nation for bringing Pakistan to its knees when they left, pursuing reckless and unhealthy policies in a few critical areas.
The PTI came with a promise of change. The citizens were enthusiastic and full of hope for a better future. However, performance in the field has been less than satisfactory in many areas. To its credit, the PTI stabilized the economy despite the Covid-19 crisis which lasted 18 months (and still ongoing). He significantly expanded the Ehsaas and Health Card program. His business stimulus package was also good. The management by the PTI of the Covid crisis and of the vaccination program was remarkable. The focus on hydropower and exports has been a very good step. While growth has certainly picked up, the number of growth – especially with two decimal places – is not plausible. Beyond these accomplishments, the performance of the PTI fell far short of promises made at election time, and repeated itself unexpectedly every day.
The incompetence of the PTI in many areas, its inability to fight inflation, the frequent musical chairs of the cabinet and half-way changes of horses, inaction on the reform front and the excessive propensity to beg and to borrow does not bode well for the future. In view of the elections and its declining popularity, the PTI has now started pursuing populist policies by increasing development spending with borrowed funds and delaying reforms of state-owned enterprises. The lavish increase in donations to the poor, financed by begging and borrowing, is not sustainable. In addition, the PTI has been reckless in increasing borrowing when we are already heavily in debt; the public debt soared to 35 trillion rupees.
The Prime Minister’s desire to become a world leader distracts his attention from extinguishing fires at home. The PTI failed as a consensus generator, a necessity for running a federation. The misplaced arrogance and combative policies of the party have further weakened the federation and dashed the hope of the following reforms that Pakistan must pursue in order to emerge from the multiple crisis and achieve sustainable growth: make agriculture and industry globally competitive, reducing water wastage, privatizing state-owned enterprises, reducing waste in government and reducing debt, raising taxes and revising the NFC, spending much more for human development and the public service.
Today, the PTI will announce its fourth budget, which will undoubtedly make big claims. But it will lack credibility if the past three years are any guide. If the ruling party continues to smoothly sell critical reforms and increase debt further, Pakistan will face a balance of payments crisis when the next government takes office in 2023 – similar to the crisis of 2008, 2013 and 2018.
In conclusion, Pakistan was in great difficulty when the PML-N mandate ended. It could soon be in a serious crisis again, unless the PTI improves its performance by focusing on the action and not the hype.
The writer is a former World Bank adviser.