Friday, June 1, 2012
Daily Times Editorial June 2, 2012
State of the economy The Economic Survey 2012 tries to project the good news (what little there is of that) regarding the economy, despite the fact that even Federal Finance Minister Dr Abdul Hafeez Shaikh admits that the government failed to meet its targets almost across the board. Nevertheless, the positive spin he tried to impart to the figures in his press conference on Thursday while presenting the Survey rotated around the argument that in the middle of a global meltdown, low investment (domestic and foreign), natural calamities such as floods for two years running, and the regional (not to mention the domestic) security situation, the economy had performed. GDP grew by 3.7 percent (3.0 percent in 2011), the highest in three years despite having missed the target of 4.0 percent. The Survey claims inflation according to the Consumer Price Index (CPI) was contained to 10.8 percent (13.8 percent in 2011), Wholesale Price Index to 11.2 percent (21 percent last year), and the Sensitive Price Index to 8.5 percent (18 percent last year). This, according to government sources, will make the 12 months target of containing CPI inflation at 12 percent achievable (the Survey covers 10 months of the current fiscal year). Whether citizens are likely to have much faith in these figures, given empirical experience of rising prices, is a moot point. Tax collection rose an unprecedented 25 percent, July-April yielding Rs 1,490 billion (Rs 1,250 billion in 2011), with government confident it will rise another 25 percent next year. The Survey claims government slashed its expenditure by 10 percent, a claim likely to be met with scepticism when the profligate ways of politicians and the ‘borrow and spend’ approach of the government are kept in mind. Government borrowed Rs 2,486 billion (Rs 2,527 billion 2011) through T-bills and PIBs and Rs 1,003 billion from the banking sector. The State Bank Governor the other day has warned of the crowding out of private sector borrowing because of the government’s demands on credit, the implications for investment and the economy being obvious. Most government borrowing is to address the fiscal, trade, current account and balance of payments deficits, all of which have been ballooning (the fiscal deficit has already surpassed the target of 4.0 percent of GDP even without including the power sector expenditures; if these and consolidation of debt are added, the fiscal deficit is an alarming 6.85 percent). Public debt has risen above Rs 12 trillion, with more than Rs 5 trillion being external debt. This represents 58.2 percent of GDP (55.5 percent 2011), which is knocking at the prudent ceiling of 60 percent. Needless to say, an economic paradigm that relies on borrowing, internal and external, to stay afloat is hocking the future of coming generations. The biggest (admitted by Hafeez Shaikh) failure of this government has been in tackling the energy crunch, particularly electricity. Four years of fiddling around with grandiose announcements of plans to overcome load shedding, which has crippled the economy and the life of citizens, have left citizens and business groups angry to the point where they are resorting increasingly to violence against the electricity providers. In an election year, this spells a great deal of political trouble for the incumbents. Manipulation of oil prices to use this as a cash source has been a classic case of cutting off one’s nose to spite one’s face, the revenue generating ‘cash cow’ impacting on inflation across the board. Rising international prices are pounced upon to justify huge increases, falls in international prices (as at present) only evoke token decreases, if any. What government gains in revenue from oil prices, it loses in inflation, economic cost of business rising, etc. Fiscal 2012, if truth be told, has been a bad year. While most targets were missed (moderately encouraging news from agriculture, manufacturing and construction sectors notwithstanding), the key challenges remain exactly where they were. Energy, security, law and order, enabling business environment, all familiar refrains, without any serious quest to address them in sight. Even the most incorrigible optimist would cringe.