THE economic performance of the PPP-led coalition will come under sharp focus as it becomes the first elected government in the country’s troubled political history to complete its full five-year term in office later this week.
Its performance will be subjected to critical scrutiny as it seeks a fresh electoral mandate.
While rolling blackouts, rising prices and slowing growth may have left most middle class households reeling, the economy has weathered many a crisis ranging from global oil price shock to hyper inflation to political instability to terrorism in the last five years.
”There was a marked downturn initially. The new government had a bumpy start as 2008 was a difficult year for the economy primarily because of global oil price shock and escalation in terrorism following the assassination of Benazir Bhutto in Dec 2007. But the economy has bounced back since,” says Abuzar Bokhari, a Lahore-based businessman who represents Porsche cars in Pakistan.
His own sales have grown ‘significantly’ during the last couple of years and future projections are ‘massive’. It was never so good ever since he brought the luxury German cars to Pakistan. Almost half of nearly 250 Porsche cars plying on the roads in Lahore and elsewhere in the country today were sold during the last two years, and his company is now ranked 10th out of 100 fastest growing firms in Pakistan by the All World Network. In 2011, it occupied 13th place.
”How can you not put your faith in an economy where new sales of (locally assembled and imported) cars are increasing rapidly and the industry is making impressive profits in spite of massive energy shortages?,” he asks as he points out that the domestic assemblers sold more than 154,000 cars in 2012, up from less than 85,000 in 2009.
At the same time, he admits that the hindrances to doing business have increased under the present government. “Rising power and gas shortages and high cost of capital have changed the game since 2008,” he notes.
Many agree with him.
“The current economic situation is far from satisfactory. Still, those who think we are headed for the brink are mistaken. The economy may be struggling but can be put back on high growth trajectory if structural, governance and financial reforms are implemented,” an economics professor at the Punjab University asserts.
”We have done pretty well despite being a war economy for more than four decades and hostile neighbours on our eastern as well as on our western borders,” notes the professor, who doesn’t want to give his name.
”Our problem is that we are not generating enough revenue to bridge budget deficit and pay for construction of roads, power plants and dams to revive the economy. Our elite is not ready to give taxes. It has spawned a large underground cash-based economy estimated to be almost equal in size to the formal, documented economy. Our future economic growth depends on documenting this unreported economy,” he says.
According to the Federal Board of Revenue (FBR), only 0.7 per cent out of 180 million people pay taxes with the tax-to-GDP (gross domestic product) stagnating at just above nine per cent or one of the lowest in the world. Almost one quarter of the total tax revenue is generated from levies on petroleum products.
State Bank Governor, Yaseen Anwar, had also pointed out in Lahore last week that the size of undocumented economy is as large as the formal economy. “The informal economy doesn’t file taxes and, while it does absorb a significant chunk of the labour force, it also evades corporate and labour laws,” he was quoted as having said.
”Although close informal relationships do make the economy more resilient, they do so at a cost of the overall economy by eroding the ambit of the regulators. Ideally, the State Bank would like to see a smaller informal economy while society retains the structure that has made it so resilient,” he had noted.
Nadeem Akhtar, a Lahore-based chartered accountant, says the underground economy makes the national economy so resilient with a billion dollars being pumped into it every month through informal hundi/hawala channels.
Saleem Mandviwala had admitted in an interview weeks before his elevation as finance minister that the government could overcome balance-of-payments troubles by somehow channelising all hundi/hawala transactions through banks.
Nabeel Hashmi, a Lahore-based businessman, is sorry to note that the country’s financial and economic woes have largely been overlooked by the government. “It will leave behind a legacy of unaddressed structural problems and weak macroeconomic policies responsible for drying private investment in the economy while creating fewer jobs.”
He agrees that the government had inherited many problems like energy shortages, political instability and terrorism exacerbated by global oil price shock but was successful in stabilising the economy. Nevertheless, he feels that it failed to address the investors concerns about poor governance, energy crunch and security conditions, resulting in drying up of private investment in the economy.
The investment-to-GDP ratio dropped to 12.5 per cent during last fiscal from 23 per cent in 2008 on account of energy constraints, security concerns and high credit cost. The drop in fresh investment and closure of installed manufacturing capacities mean fewer jobs for 1.5 million young boys and girls entering the job market each year.
Bukhari feels that the government didn’t get a chance to work. “It is a big thing that it has managed the political challenges. As to who stopped it from focusing on the economy, I’d rather not say anything,” he smiles.