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Two countries

November 05, 2017

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THE one good thing, at least which I have observed, about the army being concerned about the economy is that almost everyone in the country has suddenly become an economic wizard.

Economic indicators such as GDP growth, current account deficit, trade deficit, foreign currency reserves, external debt and liabilities seem to have become popular terms for domestic day-to-day lingua franca, and get thrown around on the electronic media like nobody’s business. Venturing a guess, however, except for a minuscule minority, most people are absolutely clueless about what these indicators signify or what they even mean.

Before discussing the nation’s collective propensity to become rocket scientists at the drop of a hat, I reiterate my personal convictions; GDP is an overrated indicator for determining economic prosperity of a developing nation, the only key indicator for that is net trade.

Coming back to economic wizardry, every Tom, Dick and Harry coughing up economic advice aside, there seems to be an utter confusion about what exactly is happening with the domestic economy, even at the level of the gurus; either we are doing amazingly or we have already fallen over the cliff. Within a week alone I came across two reviews on the economy, one from an economic think tank and another from a brokerage firm, and to say that the picture they both paint is poles apart might be an understatement.

There’s utter confusion about the domestic economy.

According to the think tank, the GDP growth was below the targeted growth rate, with experts having questioned ‘national accounts method’, whatever that means. Fiscal deficits and current account deficits are high and “are a huge risk for the economy”. Unpaid circular debt is estimated at Rs700 billion to Rs800bn. The economy’s vulnerability has grown to an alarming level. The country’s total domestic and external debt and liabilities in June 2017 were 76 per cent of GDP; which by the way is contrary to the government estimates.

Most remarkably the think tank asserted, “Despite claims, GoP has not made a single fundamental change in policy for long-term macroeconomic stability or sustained economic growth”. According to them, budgets for health, education and water sector have either been reduced or have plateaued, job growth is well below needs and dependence on energy imports is high. Importantly, all of these extracts and comments are from the executive summary section only. The rest of the report is perhaps even more scathing whilst discussing the domestic economy.

On the other hand, the brokerage firm asserts the GDP is expected to surpass 5.5pc due to strong growth from manufacturing and better crops; the highest growth in a decade, and that too broad-based. The banking sector grew by an admirable 19.7pc compared to the last five years with expansion in private credit. Monthly power generation has reached an all-time high with growth coming from cheaper sources; they expect that new power plants will replace inefficient plants. Higher growth in manufacturing is positive for jobs and trade balance, and because of a higher per capita income auto sales will continue to rise.

Cement, steel and sugar production have been growing with resultant expansion on the cards. Inflation will remain low at 4.4pc. The exchange rate remained stable for the past two years and lower oil prices helped restrict import bills; they don’t expect the rupee to depreciate more than 3pc in 2018. The firm asserts that there is no empirical evidence that currency depreciation helps in boosting exports. While the report acknowledges that debt has inclined, however, that is proportionate to the increase in size of the total economy; debt to GDP is in fact lower than 2013 levels. The report concludes with listing all the amazing things about to happen because of CPEC.

So who is right? Apparently no one knows. Baring a few obvious and stark contradictions between the two reports, the data and indicators are by and large correct; they both seem to be looking at different sides of the picture. And they are not the only ones who are looking at the picture differently. Apparently an ex government official and a government official both associated with the management of the national economy also disagree on whether or not things are bad enough to knock on IMF’s door soon; both expressing their views for the benefit of everyone inside and outside the country.

Amidst all this confusion, you cannot blame the common Pakistani when he asks how can the same set of economic indicators simultaneously show a glorious as well as an extremely depressive scenario; and more importantly is there a choice? I for one would want to live in the country where everything is hunky dory; but what if the other country is where I am living!

The chartered accountant based in Islamabad.

syed.bakhtiyarkazmi@gmail.com

Published in Dawn, November 5th, 2017