Hunain Khalid
Chief Minister (5k+ posts)
Govt failed to improve health of economy
Despite the ostensible improvement in the national economy, the financial team of the government has badly failed on all the major indicators to gauge the health of economy during the year 2015. The only successes of the government are to take the foreign exchange reserves to record $21 billion and to keep the inflation under control but these achievements are also due to the excessive borrowing and unprecedented fall in the oil prices in international market and hence the financial czars of the government could not be given credit of it as well.
While on rest of the indicators including regularization of imports and exports, expanding tax base and achieving tax collection targets, woo foreign investment, failure of privatization of loss-making state owned entities running in huge loss and other host of things the PML-N led government completely failed to even fall near their own set targets what to speak of achieving it. The IMF-dictated austerity plan of the government could not produce desired job opportunities for the youth, as unemployment is on the rise.
However, the government could be given some laxity for its failure, firstly because when PML-N took over the reins of power the economy was in tatters while the economy has to bear the extra burden of huge spending in the ongoing war on terror, especially on managing the internally displaced persons (IDPs) of Tribal Areas. Pakistan was at the verge of default when the present government assumed power as according to the financial institutions. But the governments decision to enter into another IMF programme followed by the deals with other international financial institutions had stabilized the economy at some extent.
The international rating agencies like Moody and Standard and Poors had revised the Pakistans rating after countrys reserves recorded remarkable growth.
GDP GROWTH:
The government had achieved the seven years highest growth rate of 4.24 percent in fiscal year ended on June 2015, which was far less than the target of 5.1 percent. Pakistan needs an annual growth rate of over 7% to accommodate the bulk of youth that is entering the market every year but remains jobless due to limited economic opportunities.
The performances of the sub-sector of the GDP growth also remained below the target level. The industrial sector had recorded growth of 3.62 percent during previous fiscal year as against the target of 6.8 percent. The services sector, the biggest component of the economy, fell short of the 5.2 percent target and notched up 4.95 percent growth. The agriculture sector stood way short of the expected growth of 5 percent and grew just 2.88 percent.
BUDGET DEFICIT:
The government had brought down the budget deficit to 5.3 percent of the GDP as against the target of 4.9 percent of the GDP during fiscal year ended on June 30 2015. The countrys expenditures remained at Rs5.4 trillion (19.7 per cent of GDP) as against revenues of Rs3.9 trillion (14.4 percent of GDP). Meanwhile, Pakistan's budget deficit widened to Rs328.2 billion during first quarter (July-September) of the current fiscal year due to the government's failure in achieving tax collection target.
FOREIGN EXCHANGE RESERVES:
One of the major economic successes of the government in 2015 was building the reserves to $21 billion by taking loans from International Financial Institutions and by auction of bonds in international market at expensive rates. The reserves increased by $6 billion in the previous from $15 billion benchmark of the year 2014. Pakistan had taken loans from International Monetary Fund, World Bank, Asian Development Bank, Islamic Development Bank and other during the last year. The government had received $18 billion foreign loans by Sept 30 during its two and half years. These included $3.5 billon bonds and $4.77 billion received from the International Monetary Fund. Pakistans total public debt stood at Rs18,093 billion at the end of September and Rs1,304bn was spent on debt servicing during 2014-15.
INFLATION AND INTEREST RATE:
Interest rate went down to 42-years low level following steep decline in inflation rate in previous year. Pakistans inflation rate had remained at lower level during 2015 mainly due to the massive decline in oil prices in international market. The inflation rate had touched the 15 years lowest level of 1.3 percent in September 2015. Following the steep decline in inflation rate, the State Bank of Pakistan (SBP) had reduced the interest rate by one percent to six percent, the lowest in 42 years.
EXPORTS AND IMPORTS:
The government had badly failed to increase the exports and control the imports. Pakistans exports are continuously on the declining side from more than one year, as government yet to formulate a trade policy. Pakistans exports are stagnated at $24 billion level over the last three-year despite country received GSP plus status from European Union in January 2014. The govt does not seem serious to reverse the declining trend. There is no alarm anywhere in the government and the countrys exports have been declining since January 2014. Pakistans exports tumbled by pc to $8.5 billion in July-November of the year 2015-2016 from $9.9 billion of the same period of previous year. On the other hand, the countrys imports are also continuously increasing despite oil prices tumbled in international market. Imports recorded at $18.5 billion in July-November 2015-2016
REVENUE COLLECTION:
The Federal Board of Revenue (FBR) is struggling to meet its targets of collecting taxes despite imposing new taxes continuously. The FBR had missed the twice-revised revenue collection target of Rs 2.6 trillion for previous financial year 2014-2015 despite introducing mini budgets several times. The FBR had fixed the target of Rs2810 billion but it was revised down twice by the government, bringing it down to Rs2691 billion and then finally to Rs2605 billion for the year 2014-15. Following its tradition, the FBR had also missed the first quarter (July to September) quarter target by Rs40 billion as it collected Rs 600 billion. The government on November 30 announced mini budget worth of Rs40 billion to fulfill the revenue collection shortfall. The government had not passed on the impact of tumbling oil prices to the masses by increasing the General Sales Tax on petroleum products up to 50 percent in order to generate revenue in last several months.
PRIVATIZATION OF PUBLIC SECTOR ENTITIES:
The government has yet to privatize a single loss making PSE, as it had sold the profitable entities like HBL, ABL, UBL, Pakistan Petroleum Limited and National Power Construction Company. The government's ambitious privatization plan had to face a major blow in 2015 when the deal to sell out Heavy Electrical Complex (HEC) was cancelled when the cheque of successful buyer was dishonored and the government had to end the deal. The government is facing stiff resistance from opposition and workers unions in privatization of Pakistan Steel Mills, Pakistan International Airlines and power distribution companies.
LOSSES OF PIA AND PSM:
The government had failed to improve the condition of PIA and PSM during its two and half years tenure. The PSM is not operational from last several months due to the suspension of gas supply. Pakistan International Airlines and Pakistan Steel Mills accumulated losses surged to Rs226.8 billion and Rs142.8 billion respectively. The PSM was a profitable entity during the fiscal year 2007-08, as the Mill earned profit worth of Rs9.5 billion. Afterwards Pakistan Steel Mills turned into a loss making entity as its losses surged up to Rs142.87 billion in financial year 2014-15. PIA incurred a net loss of Rs32.22 billion by the end of fiscal year 2014, resulting in accumulated losses of Rs226.84 billion. Similarly, total liabilities of the PIA stood at Rs295.5 billion as at FY2014, out of which Rs161.35 billion represents borrowing.
FOREIGN DIRECT INVESTMENT:
FDI inflows are not only declining but also outflows were increasing rapidly as investors were not retaining their investment in Pakistan. The FDI in Pakistan had drastically declined in the recent months due to the security reasons and shortage of the electricity and gas. The government hoped that investment would increase with $46 billion China Pakistan Economic Corridor (CPEC). However, FDI is continuously declining, as foreign direct investment and approximately $1 billion decline in the first four months of the current fiscal year.
WITHHOLDING TAX ISSUE WITH TRADERS:
The government had serious issues with the business community of the country over the imposition of the 0.6 percent withholding tax on the banking transactions for non-filers in the budget 2015-2016. Traders across the country showed resistance over the decision and observed countrywide strike by closing their businesses, which completed the government to reduce the WHT rate to 0.3 percent.
NEW NFC AWARD:
The PML-N govt had not constituted the new National Finance Commission (NFC) award, as previous NFC award was expired on June 30 2015. The provinces except Punjab had shown serious concerns over the delay of new NFC award, new resource sharing formula between provinces and the federal government. The government had extended the previous NFC award for one year due to its own failure.
Published in The Nation newspaper on 01-Jan-2016
Source: http://nation.com.pk/2015-in-review/01-Jan-2016/govt-failed-to-improve-health-of-economy
Despite the ostensible improvement in the national economy, the financial team of the government has badly failed on all the major indicators to gauge the health of economy during the year 2015. The only successes of the government are to take the foreign exchange reserves to record $21 billion and to keep the inflation under control but these achievements are also due to the excessive borrowing and unprecedented fall in the oil prices in international market and hence the financial czars of the government could not be given credit of it as well.
While on rest of the indicators including regularization of imports and exports, expanding tax base and achieving tax collection targets, woo foreign investment, failure of privatization of loss-making state owned entities running in huge loss and other host of things the PML-N led government completely failed to even fall near their own set targets what to speak of achieving it. The IMF-dictated austerity plan of the government could not produce desired job opportunities for the youth, as unemployment is on the rise.
However, the government could be given some laxity for its failure, firstly because when PML-N took over the reins of power the economy was in tatters while the economy has to bear the extra burden of huge spending in the ongoing war on terror, especially on managing the internally displaced persons (IDPs) of Tribal Areas. Pakistan was at the verge of default when the present government assumed power as according to the financial institutions. But the governments decision to enter into another IMF programme followed by the deals with other international financial institutions had stabilized the economy at some extent.
The international rating agencies like Moody and Standard and Poors had revised the Pakistans rating after countrys reserves recorded remarkable growth.
GDP GROWTH:
The government had achieved the seven years highest growth rate of 4.24 percent in fiscal year ended on June 2015, which was far less than the target of 5.1 percent. Pakistan needs an annual growth rate of over 7% to accommodate the bulk of youth that is entering the market every year but remains jobless due to limited economic opportunities.
The performances of the sub-sector of the GDP growth also remained below the target level. The industrial sector had recorded growth of 3.62 percent during previous fiscal year as against the target of 6.8 percent. The services sector, the biggest component of the economy, fell short of the 5.2 percent target and notched up 4.95 percent growth. The agriculture sector stood way short of the expected growth of 5 percent and grew just 2.88 percent.
BUDGET DEFICIT:
The government had brought down the budget deficit to 5.3 percent of the GDP as against the target of 4.9 percent of the GDP during fiscal year ended on June 30 2015. The countrys expenditures remained at Rs5.4 trillion (19.7 per cent of GDP) as against revenues of Rs3.9 trillion (14.4 percent of GDP). Meanwhile, Pakistan's budget deficit widened to Rs328.2 billion during first quarter (July-September) of the current fiscal year due to the government's failure in achieving tax collection target.
FOREIGN EXCHANGE RESERVES:
One of the major economic successes of the government in 2015 was building the reserves to $21 billion by taking loans from International Financial Institutions and by auction of bonds in international market at expensive rates. The reserves increased by $6 billion in the previous from $15 billion benchmark of the year 2014. Pakistan had taken loans from International Monetary Fund, World Bank, Asian Development Bank, Islamic Development Bank and other during the last year. The government had received $18 billion foreign loans by Sept 30 during its two and half years. These included $3.5 billon bonds and $4.77 billion received from the International Monetary Fund. Pakistans total public debt stood at Rs18,093 billion at the end of September and Rs1,304bn was spent on debt servicing during 2014-15.
INFLATION AND INTEREST RATE:
Interest rate went down to 42-years low level following steep decline in inflation rate in previous year. Pakistans inflation rate had remained at lower level during 2015 mainly due to the massive decline in oil prices in international market. The inflation rate had touched the 15 years lowest level of 1.3 percent in September 2015. Following the steep decline in inflation rate, the State Bank of Pakistan (SBP) had reduced the interest rate by one percent to six percent, the lowest in 42 years.
EXPORTS AND IMPORTS:
The government had badly failed to increase the exports and control the imports. Pakistans exports are continuously on the declining side from more than one year, as government yet to formulate a trade policy. Pakistans exports are stagnated at $24 billion level over the last three-year despite country received GSP plus status from European Union in January 2014. The govt does not seem serious to reverse the declining trend. There is no alarm anywhere in the government and the countrys exports have been declining since January 2014. Pakistans exports tumbled by pc to $8.5 billion in July-November of the year 2015-2016 from $9.9 billion of the same period of previous year. On the other hand, the countrys imports are also continuously increasing despite oil prices tumbled in international market. Imports recorded at $18.5 billion in July-November 2015-2016
REVENUE COLLECTION:
The Federal Board of Revenue (FBR) is struggling to meet its targets of collecting taxes despite imposing new taxes continuously. The FBR had missed the twice-revised revenue collection target of Rs 2.6 trillion for previous financial year 2014-2015 despite introducing mini budgets several times. The FBR had fixed the target of Rs2810 billion but it was revised down twice by the government, bringing it down to Rs2691 billion and then finally to Rs2605 billion for the year 2014-15. Following its tradition, the FBR had also missed the first quarter (July to September) quarter target by Rs40 billion as it collected Rs 600 billion. The government on November 30 announced mini budget worth of Rs40 billion to fulfill the revenue collection shortfall. The government had not passed on the impact of tumbling oil prices to the masses by increasing the General Sales Tax on petroleum products up to 50 percent in order to generate revenue in last several months.
PRIVATIZATION OF PUBLIC SECTOR ENTITIES:
The government has yet to privatize a single loss making PSE, as it had sold the profitable entities like HBL, ABL, UBL, Pakistan Petroleum Limited and National Power Construction Company. The government's ambitious privatization plan had to face a major blow in 2015 when the deal to sell out Heavy Electrical Complex (HEC) was cancelled when the cheque of successful buyer was dishonored and the government had to end the deal. The government is facing stiff resistance from opposition and workers unions in privatization of Pakistan Steel Mills, Pakistan International Airlines and power distribution companies.
LOSSES OF PIA AND PSM:
The government had failed to improve the condition of PIA and PSM during its two and half years tenure. The PSM is not operational from last several months due to the suspension of gas supply. Pakistan International Airlines and Pakistan Steel Mills accumulated losses surged to Rs226.8 billion and Rs142.8 billion respectively. The PSM was a profitable entity during the fiscal year 2007-08, as the Mill earned profit worth of Rs9.5 billion. Afterwards Pakistan Steel Mills turned into a loss making entity as its losses surged up to Rs142.87 billion in financial year 2014-15. PIA incurred a net loss of Rs32.22 billion by the end of fiscal year 2014, resulting in accumulated losses of Rs226.84 billion. Similarly, total liabilities of the PIA stood at Rs295.5 billion as at FY2014, out of which Rs161.35 billion represents borrowing.
FOREIGN DIRECT INVESTMENT:
FDI inflows are not only declining but also outflows were increasing rapidly as investors were not retaining their investment in Pakistan. The FDI in Pakistan had drastically declined in the recent months due to the security reasons and shortage of the electricity and gas. The government hoped that investment would increase with $46 billion China Pakistan Economic Corridor (CPEC). However, FDI is continuously declining, as foreign direct investment and approximately $1 billion decline in the first four months of the current fiscal year.
WITHHOLDING TAX ISSUE WITH TRADERS:
The government had serious issues with the business community of the country over the imposition of the 0.6 percent withholding tax on the banking transactions for non-filers in the budget 2015-2016. Traders across the country showed resistance over the decision and observed countrywide strike by closing their businesses, which completed the government to reduce the WHT rate to 0.3 percent.
NEW NFC AWARD:
The PML-N govt had not constituted the new National Finance Commission (NFC) award, as previous NFC award was expired on June 30 2015. The provinces except Punjab had shown serious concerns over the delay of new NFC award, new resource sharing formula between provinces and the federal government. The government had extended the previous NFC award for one year due to its own failure.
Published in The Nation newspaper on 01-Jan-2016
Source: http://nation.com.pk/2015-in-review/01-Jan-2016/govt-failed-to-improve-health-of-economy
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