State of IKonomy

Published June 15, 2021
The writer is a political economist.
The writer is a political economist.

PTI SUPPORTERS say the economy is better off now than before and on to durable growth, although some have used iffy data. Many cheer an all-time high tax revenue of Rs4.1 trillion. New highs mean little. Even if revenue grows by 0.001 per cent, it hits highs annually. It should have hit Rs4.1tr in 2019 and be near Rs6tr now at 2013-18 growth rates.

One also sees uneven comparison bases, cherry-picked or bad data, minor measures and contrasts with low-base 2020 data. To fact check claims, I compare the PTI’s, PML-N’s and PPP’s last eras on 16 key measures using their mean annual growth or ratios to GDP via the Economic Survey and State Bank data.

GDP growth and inflation directly affect the masses. Even with an iffy initial GDP growth estimate of 3.9pc, its annual rate is 1.8pc vs 2.8pc for the PPP and 4.7pc for PML-N. Our GDP has a premature services bent which offer less jobs than industry. Their share has gone up under the present government to 61.4pc and industry’s down by 1.2pc to 19.3pc (South and East Asia averages: 25pc and 35pc).

Low investment but high public/private consumption hurt too. Mean investment was 16pc of GDP for the PML-N, 15.4pc for PTI and 11pc for PPP (Saarc average: 29pc). So the consumption bias is up again. Inflation was highest under the PPP (12pc plus) and lowest under the PML-N (about 5pc).

PTI’s economic record is not rosy as some say it is.

External and fiscal deficits cut GDP growth. The PTI sees current account deficit (CAD) cuts as its top feat. Its annual CAD of 2.07pc of GDP beats PML-N’s 2.8pc but nearly equals PPP’s 2.16pc, which inherited a bigger CAD of 8.2pc of GDP from 2007-08 (vs 6.1pc by the PTI from 2017-18) due to an overvalued rupee under Musharraf.

The PTI cut CAD more via anti-growth import cuts; PPP by upping exports 4pc annually vs PTI’s 0.3pc and PML-N’s -0.02pc. Even IT exports grew much faster under the PPP. It gave higher growth than the PTI despite facing similar devaluation and higher interest rates under IMF’s watch, much higher oil prices and terrorism and a big global crisis. The PTI claims big remittances growth. Its 13.3pc annual growth beats PML-N’s 7.4pc but not the PPP’s 16.7pc. Its mean annual foreign investment is lower than the PML-N’s and about the same as PPP’s. CPEC investment fell by 40pc from peak 2016-18 levels. It upped public external debt by 6.8pc annually vs 8pc and 3.5pc under the PML-N and PPP and grew foreign reserves faster than the other two.

Fiscally, its nominal tax-to-GDP ratio beats PPP’s but is 2pc lower than PML-N’s despite similar nominal GDP growth due to higher inflation. So mean annual fiscal deficit by the end of 2020-21 may cross 7.5pc vs 5.5pc for the PML-N and 7pc for PPP. Barred by the IMF from attaining growth via CADs as the PML-N did in 2018, it got low growth via big fiscal deficits like the PPP. The PTI’s mean total of fiscal deficit and CAD ratios is the worst, as are its development outlay and indirect tax ratios (67.5pc vs 66pc for the PML-N and 65pc for PPP). It grew domestic debt faster than the PML-N but slower than PPP.

On 16 measures then, PTI did best only on reserves. But they less clearly show economic prowess than, say, exports. The PML-N did best on nine measures (GDP, investment, inflation, FDI, taxes, fiscal deficit, development outlay, local debt and twin deficits total) but PTI reversed its gains while doing better than it only on four (CAD, exports, remittances and external debt). While facing more exogenous and ‘same-page’ issues than the PTI, PPP did best on six (industry share, CAD, exports, remittances, external debt and direct taxes).

The PTI’s recent pluses are mostly against its own worst results, ie, PTI beat PTI only. The economy is not better off than before nor on to durable growth. It has used big fiscal deficits to give low-level and also low quality growth: deindustrialisation; low investment; more consumption, inflation and indirect taxes; near-flat exports, FDI and real wages; and high poverty and job losses.

The fiscal deficit is less hard a bind than CAD. So fiscal stimulus helps in recession. But we see stagflation. Hence inflation limits its value. We have precious fiscal space too given high debt and must use it wisely for big impact. But the big fiscal deficits gave low-quality growth worse than even the PPP’s.

Faced with data, fans blame bad outcomes on the PML-N and Covid-19. A 2pc growth in 2018-19 reflects PML-N’s actions as PTI had to devalue the rupee from 123 to 155. This cut growth and upped inflation. Still, its team choices, lack of policy, late IMF deal, CPEC drift, etc hurt too. We had -0.5pc growth in 2019-20 but the rupee only went from 155 to 165, and by then more from the PTI’s actions than PML-N ones. Covid-19 hit last year. But even in 2019-20, the initial GDP growth rate based on the July-March data with only a week of lockdown was -0.4pc. So the PTI government had a big hand in our first minus growth since 1952.

The writer is a political economist.

Twitter: @NiazMurtaza

Published in Dawn, June 15th, 2021



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