PRIVATE investment remains shy in the country because of different factors, including energy shortages, poor security conditions and political instability.

“The return of the business-friendly government of Prime Minister Nawaz Sharif had generated a lot of optimism in the country. But almost two years later, despondency seems to be overtaking the initial response,” noted financial analyst Shahid Zia.

He believes that the utter failure of the Nawaz government to reform is the root of the difficulties facing the economy. “The government has not implemented any reforms to fix the economy ever since the PML-N returned to power. The power sector, for example, continues to bleed in spite of the hefty increase in electricity price, and the circular debt has risen again.”

Finance Minister Ishaq Dar, on the other hand, consistently claims to have stabilised the economy and improved the country’s fiscal position. And his claims have largely been endorsed by the International Monetary Fund (IMF).

“The (economic) stability we see today is temporary because of its poor quality. The indicators may have improved, but even a small internal or external shock can reverse these gains because the improvement is not founded on the required fiscal and structural reforms,” mused a Lahore School of Economics professor, who did not want to give his name.

‘The (economic) stability we see today is temporary because of its poor quality. The indicators may have improved, but even a small internal or external shock can reverse these gains’

For example, he pointed out that no effective action has been taken to broaden the narrow tax net and increase revenue collection, which is at the heart of the financial problems of the government and has been retarding public development investment.

“Reduction in the fiscal deficit at the cost of development investment may be a big achievement for the finance minister, his boss and the IMF, but it means misery for the people,” he said.

Others, however, say the government was prevented from taking politically unpopular decisions because of the anti-government protests last year.

“The PML-N government has been bogged down by political volatility and the war against terrorists in the country’s tribal backyard. It had to delay some tough decisions initially because of protests by Imran Khan’s Pakistan Tehrik-i-Insaf and later owing to the terrorist strike at the Peshawar school,” said an economist working with the federal government on the condition of anonymity.

“With the political instability behind us and the military operation against terrorist outfits operating against the state gaining success, I see the economy rebounding in the next two to three years and investment — both public and private — rising to new heights,” he concluded.

Meanwhile, in its latest report on the performance of the economy during the first half of this fiscal year, the Lahore-based Institute of Policy Reforms (IPR) drew a very bleak picture.

Unveiling the report in Islamabad last week, IPR managing director Hafiz Pasha predicted that the government would miss most budgetary targets, and that growth will remain sluggish; the fiscal deficit will be over 6pc; tax revenue collection will fall far short of the target; and investment will weaken.

The current account deficit, too, is unlikely to show improvement in spite of the heavy external borrowings and a big drop in global oil prices.

Pasha also accused the government of fudging numbers to ‘show good fiscal performance’ to get money from the IMF, as the half-yearly budget deficit of 2.2pc of GDP was achieved by delaying debt payments.

The IPR report brings focus back on the poor performance of the Federal Board of Revenue (FBR), whose failure to meet the tax collection target in any given year is a major reason for tardy economic growth since 2008.

Pasha is of the view that the FBR will not be able to collect more than Rs2.6trn in tax revenues, against the original budget target of Rs2.81trn. This is in spite of the ‘four mini-budgets, with a net revenue impact of Rs160bn’ that were introduced to offset revenue losses on account of falling international oil prices.

The FBR collected Rs1.519trn during the eight months of the fiscal year to February, showing an increase of just 13pc from the Rs1.342trn it collected a year ago. The low collection will not only push the fiscal deficit, but also force a significant reduction in development spending.

The report says the federal development budget was already cut by 15pc and the provincial ones by 30pc in the first half of the fiscal year.

Published in Dawn, Economic & Business, March 9th, 2015

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