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Report card on the eve of elections

January 27, 2013

A worker seals a ballot box at a polling station in Islamabad. – AP (File Photo)

After coming to power in March 2008, the Pakistan Peoples Party’s coalition government announced a nine-point agenda to reform the governance mode and address structural problems of the national economy it inherited from the military-led regime.

Five years down the road, most of the challenges, more or less, still exist. With transfer of power expected to take place in a few weeks after general elections due in May this year, the new government would be confronted with even more serious economic problems.

Timing of the presentation of the federal and provincial budgets itself seems to be problematic. In normal course of events, assuming the elections are held in the first or second week of May, it would be a tough job to cobble a new elected coalition government by end of that month because of a likely fractured electoral mandate. That would mean the proposed presentation of the budget on May 31 is most unlikely to be met.

And if the PPP’s agreement with Dr Tahirul Qadri comes into play, even if the governments are dissolved ahead of March 16 constitutional term of National Assembly, it would require at least 90 days for general elections — one month for scrutiny of candidates as conceded to Dr Qadri and two months of campaigning. The elections would then be held in the first week of June. Give 10-15 days for formation of post-poll alliances and the elected government would take charge at the earliest by end of second week of June.

This leaves little time and room for the next elected government to articulate its economic policies as part of the first budget of its tenure because that would delay presentation of federal and provincial budgets into July of next fiscal year — resulting in a constitutional and legal imbroglio. Therefore, it would have to bank primarily on simple balance-sheet sort of budget prepared by bureaucrats or technocrats of the interim government instead of pursuing its own policies. Even then it would leave very limited time for parliamentarians to have substantial budget debate.

Although a few major milestones were achieved towards empowering the federating units through 18th constitution amendment and 7th National Finance Commission award, the underlying objective of improving the living conditions of the common man remained a pipedream. On top of that, a cursory look at the outcome of 9-point economic agenda shows that most of the objectives remained elusive.

The first of the nine points was achieving ‘macroeconomic stability and real sector growth’. All along five years, the real GDP growth remained at sub-optimal level of less than an average of 3.5 per cent and fiscal deficit on average in excess of six per cent. The real GDP growth after dipping to a lowest two per cent in 2008-09 slightly improved to 3.3 per cent in 2009-10, dropped again to 2.4 per cent in 2010-11 and then went up to 3.7 per cent in 2011-12, missing all annual targets.

For this year, the government is expecting a growth rate of about 4.2 per cent but the IMF and World Bank estimate it at 3.5-3.7 per cent. Official and independent economists agree that Pakistan needs at least 7-8 per cent annual growth rate to absorb a growing number of young workforce that in itself may threaten the country’s social fabric instead of becoming a ‘demographic dividend’.

Despite repeated announcements to contain fiscal deficit close to four per cent of GDP, the fiscal year 2008-09 ended with 5.2 per cent, 2009-10 with 6.3 per cent and 2010-11 with 5.9 per cent. Again in 2011-12, the annual target of 4.2 per cent was missed with the deficit rising to 6.6 per cent. For this year, the IMF has projected a fiscal deficit of 7.5 per cent.

The tax-to-GDP ratio that stood at about nine per cent in 2008-09 has slightly improved to 9.3 per cent now though short of the claim to increase this ratio by 0.5 per cent every year to 15 per cent by 2014. Because of its failure to stay on agreed reform course to achieve macroeconomic stability, the IMF terminated its $11.3 billion bailout package midway, though after initial disbursements of $7.6 billion.

The second item on the economic agenda was ‘protecting the poor and the vulnerable’. While through a social safety net — ‘Benazir Income Support Programme’ — over Rs130 billion have so far been distributed among poor households (that protected many people from going down the poverty line), the primary objective of reducing the percentage of poor was not achieved owing to sluggish economic conditions.

The third target was ‘increasing productivity and value addition in agriculture to maintain its growth momentum’. The agriculture sector generally failed to achieve its output targets owing mainly to natural disasters even though huge subsidies and generous support prices helped rise major crop output including that of wheat and sugarcane more than domestic consumption. Agricultural value addition failed to make any mark over the five-year period.

The fourth item on the agenda was ‘making industry internationally competitive with supportive polices’. Not only industrial sector growth continued to miss annual targets year after year and averaged less than three per cent of GDP due to energy shortages, the government could not give an industrial policy at all in the five years of its tenure.

In fact, a national industrial policy crystallised in its final days of the previous regime but could not be fine-tuned by this government for announcement. On top of that, the increase in the cost of doing business and energy shortages led to closure to thousands of industrial units and laying off tens of thousands of workers.

Another objective to ‘ensure capital and finance for development’ remained short of expectations as the government relied heavily on bank borrowing to bridge its fiscal deficit. Major public sector development projects faced cost over-runs and delays owing to large and un-targeted project portfolio as the Planning Commission shelved hundreds of ‘low priority’ projects and the private sector faced liquidity crunch from the banking sector that kept on investing in government papers instead of lending to the private sector.

Two related objectives — removing infrastructure bottlenecks in energy, power and transport sector and integrated energy development programme — also remained unfulfilled. While the government injected over Rs1.8 billion in power sector to keep it afloat, the shortages maintained an increasing trajectory throughout the five years of PPP government. In the process, it failed to take in hand major water and power sector projects or complete ongoing projects including big ticket items like Diamer-Bhasha dam and Neelum Jhelum Hydropower Project.

Consequent to devolution of power, the award of licences for exploration and development of hydrocarbon resources remained suspended for more than a year while major energy sector firms failed to pursue their development plans owing to huge amounts stuck in the chronic energy sector circular debt.

‘On achieving ‘millennium development goals (MDGs) for human capital development’, it would be suffice to quote a 2012 report of the United Nations. It said Pakistan adopted 18 targets and 41 indicators to be meet until 2015. Based on available data for 33 indicators, the UN reported 20 indicators lagging behind timelines, slow progress on four, on-track in three and off-track on one. Only five indicators were achieved.