Reality and claims of PTI govt's economic development
Reality and claims of PTI govt's economic development
Before coming to power, the Pakistan Tehreek-e-Insaf (PTI) made loud claims about restructuring the economic structure and keeping the country on the path of development, but after coming to power, the government s economic planning remained weak, leading to Pakistan s slow economy.
In 2018, Pakistan s GDP growth was 5.53%, and it had the status of an emerging economy. However, after the PTI came to power, the GDP growth rate in 2019 was 1.91 percent and in the current year, the GDP has come down to minus 0.38 percent.
The last negative growth in the Pakistani economy was seen in the financial year 1951-52. The crisis of 1971 in which Bangladesh seceded from Pakistan, even then Pakistan s GDP growth was 1.23%.
During the two-year tenure of the PTI government, the value of the dollar, petrol and other commodity prices, inflation and unemployment rates and the country s debt have increased dramatically.
The details of the implementation of the economic targets set by the PTI in its manifesto are as follows
Transforming Pakistan into a business friendly country
One of the points in the PTI s manifesto was to move Pakistan from 147th to 100th in the global business rankings.
This year, Pakistan has moved up 28 places to 108th position. However, the crisis in the energy sector is a major obstacle to creating a business-friendly environment.
Overseas Pakistanis have been invited to invest in Pakistan and there have been claims that billions of dollars will be invested in Pakistan.
But there was no clear difference in remittance figures or major investments.
If you look at the statistics of the stock exchange and the State Bank of Pakistan (SBP), foreign investors are withdrawing their capital from Pakistan.
SBP policy rate / interest rate
Before the PTI came to power in July 2018, the SBP s policy rate was 7.5%. With the coming to power of PTI, the policy rate was increased to 8.5% in October 2018, which later reached 10.75% by April 2019.
In May 2019, the government appointed Raza Baqir as Governor SBP while negotiating a loan agreement with the International Monitory Fund (IMF).
He fixed the policy rate at 12.25%. In July 2019, when the policy rate was revised to 13.25%, there was a storm of inflation in the country.
Inflation in January 2020 was recorded at 14.6% due to poor economic policies of the government. The economic downturn came after the global epidemic Coronavirus.
In view of all this, the SBP has reduced 625 basis points in the last two months to keep the market afloat and fixed monetary policy rate to 7% in June 2020 from 13.25% in July 2019 last year.
Inflation
The life of a common man is getting worse day by day due to rising inflation and economic woes in Pakistan. When the PTI took over the government in August 2018, the inflation rate was 6.2 percent, which rose to 10.5 percent in August 2019. In January 2020, the inflation rate was at a record 14.6%.
Meanwhile, food prices rose sharply. Inflation stood at 9.3 percent last month.
PTI s performance in economic sectors - industrial sector
The industrial sector, which accounts for 19 percent of Pakistan s economy, was growing at a rate of 4.61 percent before the PTI came to power.
In the first financial year of the PTI government, the growth in the industrial sector was recorded at negative 2.27%.
In 2020, the rate was negative 2.6 percent. Due to the sharp decline in the industrial sector, about 20 million people lost their jobs.
Under the present government, the auto industry suffered the most in the industrial sector. To support the industrial sector, the government provided loans at a subsidized rate of 5% to Long Term Trade Financing (LTFF) and 3% to Export Finance Scheme (EFS). In this regard, Rs. 36.99 billion was disbursed under LTFF in the financial year 2020 from July to April as against Rs. 33.52 billion last year.
In the financial year 2020, 109.186 billion was disbursed from July to April as against 84.03 billion in the previous year. In addition, the ECC has approved a provision of Rs. 50.7 billion for Small Medium Enterprises (SMEs).
Agriculture sector
The agricultural sector plays a significant role in the national economy and contributes 19.31% to Pakistan s GDP.
In 2017-18, the growth rate in the agricultural sector was 4%, which was the highest rate since the financial year 2004-05.
After the PTI came to power, the growth rate in the agricultural sector has been 2.67% this year as against 0.58% in 2019.
The area under cultivation in the country has started decreasing due to water scarcity while farmers have reduced their use of fertilizer due to increase in fertilizer prices.
Due to which the production of important crops in Pakistan has started to decline. At the same time, this year s locust attack has also caused a loss of at least 800 billion to the country s agriculture.
Services sector
The services sector accounts for 62% of Pakistan s economy. Before the PTI came to power, the sector was growing at a rate of 6.35%.
The economic slowdown has pushed the services sector to 3.75% in 2019 and minus 0.59% this year.
For the first time in Pakistan s service sector, the credit for the negative rate also goes to PTI. At the same time, the lockdown caused by the Coronavirus epidemic has added to the economic slowdown.
The direct effect of which was in the form of increase in unemployment. For the first time in Pakistan s history, a negative rate in the services sector has been observed.
In the industrial sector, wholesale and retail trade declined by 3.42 percent, while communications declined by 7.13 percent.
Per capita income
The per capita income in Pakistan was $1026 which gradually increased annually and in the last financial year 2008-09 of the previous government the per capita income reached at $1652.
After that it started to decrease. The economic downturn and the sharp decline in the value of money led to a decline in per capita income.
In the first year of PTI rule, per capita income decreased to $1455 while in the financial year 2019-20 it decreased further to $1355.
Compared to neighboring countries, India s per capita income for the financial year 2008-09 was $1,049 while that of Bangladesh was $728.
Compared to the financial year 2008-09, Pakistan s per capita income has increased by $329 in 2019-20, India s per capita income has increased by $1123 while Bangladesh s has increased by $1339.
In fiscal year 2008-09, Bangladesh s per capita income was $298 less than Pakistan s, while in fiscal year 2019-20, it is $712 more than Pakistan s.
Development of small and medium enterprises
Micro, small and medium enterprises (MSMEs) play an important role in the economic development of the country due to their significant contribution in production, exports and employment. In particular, small and medium enterprises account for 90% of Pakistan s overall business economy and 40% of the country s annual GDP.
In addition, 80% of Pakistan s non-agricultural manpower is involved in small and medium enterprises.
Despite playing an important role in the country s economic growth, only 6% of the loans provided to businesses by banks and financial institutions are provided to small and medium enterprises.
In order to bring economic recovery in the country, it is necessary to promote exports, for which it is necessary to focus on the SME sector, to compete in the global market by improving the manufacturing industry.
The PTI government released the draft Small Medium Enterprise Policy 2020 to change the 2007 Small Medium Enterprise Policy at the request of traders.
However, the government has not yet been able to put it into practice. However, the Economic Co-ordination Committee announced a "Small Business and Industry Assistance Package" to accelerate the economic slowdown caused by the Coronavirus epidemic.
In this scheme, Rs50 billion was allocated for small and medium enterprises, under which discounts were given on electricity bills.
The total number of SMEs in the country is estimated at 5.2 million, out of which more than 3.5 million will be able to benefit from this scheme.
Budget deficit
In the last financial year 2017-18 of the previous government, the budget deficit was Rs. 2,260 billion, which was 6.6% of the GDP While the budget deficit in the financial year 2018-19 was Rs 3,444 billion, while budget deficit in the last financial year 2019-20 was Rs 3,376 billion.
The budget deficit was 8.1% of GDP in FY2019, while it was 8.9% in FY18-2018. This is the second consecutive year of PTI when the country s budget deficit has been more than 8%.
The government had claimed to keep it at 7.1 percent in the last financial year. The government resorted to domestic and foreign loans to cover the budget deficit.
According to the Finance Ministry, domestic and external loans of Rs 2,480 billion and Rs 896 billion were obtained in the last financial year.
In the financial year 2018-19, local loans of Rs 3,028 billion and external loans of Rs 417 billion were taken.
Current account deficit
Before the PTI came to power, Pakistan s current account deficit was recorded at $19.87 billion in the fiscal year 2017-18, which was at the highest level in the history. However, after coming to power, the PTI took steps to overcome it.
As a result, the current account deficit narrowed to $13.50 billion in the fiscal year 2018-19, while the current account deficit narrowed further to $2.97 billion in the last fiscal year 20-2019.
Thus, PTI has reduced its trade deficit by 85% in its two-year tenure. In addition, the current account deficit, which was 6.1% of GDP two years ago, has now reached 1.1% in FY2019.
Pakistan Stock Exchange 100 Index
The 100 index of the stock exchange was at 42,446 before the PTI government took office, which later fell due to the economic slowdown and reached the level of 29,429 in August 2019, exactly one year later.
In the first week of January 2020, the index rose to 43,200 due to the market boom, but the global epidemic Coronavirus froze economic activity around the world.
As a result, the index hit 28,100 after just two months. The market has picked up again since the PTI government has eased the lockdown. And in the second week of August, the index hit 40,470, which is expected to improve further.
Trade deficit
When the PTI took over the government, the country s trade deficit was $30 billion. In the financial year 2017-18, Pakistan s imports were $55 billion while exports were close to $25 billion.
To increase its exports, PTI increased the tax duty on imported goods and also raised the slogan of Made in Pakistan.
The trade deficit narrowed to $27 billion in fiscal year 2018-19. In the financial year 2018-19, the country s total imports stood at $52 billion while exports stood at close to $24 billion.
In the last fiscal year 2019-20, the trade deficit narrowed further to $20 billion, which is considered one of the major achievements of the government.
This year, imports stood at $42 billion while exports stood at $22 billion. One of the main reasons for the reduction in the trade deficit in FY2019 is the global economic slowdown and the significant decline in imports. Pakistan s monthly imports have been less than $4 billion since last year.
Exports
Before the PTI came to power, Pakistan s exports were $24.7 billion. One year after the PTI government, exports fell by $500 million to $24.2 billion in fiscal year 2018-19.
After completing two years of PTI government in the financial year 2019-20, the country s exports further decreased to $22.5 billion.
The PTI government s manifesto included an increase in the country s exports, but the last two years have seen a decline of $2 billion.
Imports
Before the PTI came to power, Pakistan s imports were $55.6 billion. PTI came into government and increased taxes and duties to reduce the country s import bill.
As a result, a year later, in the fiscal year 2018-19, the country s imports came to $51.8 billion. In FY2019, imports fell further to $42.4 billion
Thus, in its two-year rule, the PTI has reduced the country s imports by 23% from $55.6 billion to $42.4 billion.
Rupee against dollar
Before the PTI came to power, the dollar was available in the market at Rs123. The last two years have seen a gradual increase.
A year later, in August 2019, the value of the dollar reached Rs160, while in August this year, the price per dollar was recorded at Rs168. Thus, the value of the dollar has risen by 37% in the last two years.
Foreign exchange reserves
In August 2018, Pakistan s foreign exchange reserves were $16.4 billion. In August 2019, a year after the PTI came to power, the country s foreign exchange reserves fell to $15.6 billion.
However, this year it has increased significantly and in August 2020, the country s foreign exchange reserves reached $19.5 billion.
Remittances
Remittances to Pakistan totaled $19.9 billion in FY17-2018. One year after the PTI took power, remittances in FY19-2018 increased by almost 2 billion to $21.8 billion. In the last fiscal year 2019-20, remittances were $23.1 billion.
