Wednesday, December 8, 2021

Puzzling progress

LAHORE: The exports are on the rise, remittances are ballooning, the foreign exchange reserves are comfortable, the construction sector is booming, yet the public at large is unhappy. Puzzling, isn’t it?

The government is putting in efforts to make it work, but unsuccessfully. The impact of the economy is not being felt at grassroots level. Despite increase in economic activities the prices are constantly rising. The incomes are also stagnant. The improvement in the economy is elitist. The production and sales of luxury cars is much higher than that of small cars of 1000 cc or below. The construction boom is more visible in posh localities or the government sponsored projects.

The production in large-scale manufacturing is growing while it is declining or stagnant in small and medium industries. The share of total employment in the large-scale industries is less than 10 percent of the total employment.

The SMEs that account for over 70 percent of the employment are under stress. The governance level has gone down further as the growth improves. The rates of sugar and wheat are again increasing after a small decrease because of imports.

Pakistan has always been classified as an elitist economy where almost all economic gains are captured by the elite. The trickledown effect of growth is nowhere to be seen this time. We cannot embark on a sustainable growth path if the overwhelming majority of the human resource remained starved of growth benefits.

It seems prudent planning is elusive as always. The ruling elite are consuming all energies to prove the economy is on the go. We have made great strides in the World Bank’s ease of doing business but that has been offset by the corresponding increase in cost of doing business. The feasibility reports of different industrial products show local sales may be possible because of protection against imports but there is no export competitiveness.

The minimum wage is stagnant at Rs17,000 (since 2018). The cost of living has grown so high it is not possible to live comfortably off minimum wage. The dilemma for the government is that increase in minimum wage would not be welcomed by the businesses, particularly the exporters. Moreover, only fractions of the workers are given the minimum wage mostly by exporters and the corporate sector. The majority works at half or two-third of the minimum wage fixed by the state. With prices rising and incomes so low, the public is not interested in elitist growth. They want their share in the pie. The productivity has declined over time. We cannot expect unhappy and low-paid workers to improve productivity, while living in distress.

As far as the macroeconomic indicators are concerned, we see the current statistics and do not analyze the factors that helped improve these indicators. We will remain a poor economy if we continue to accumulate debt.

The most important macroeconomic indicator that needs improvement is the fiscal deficit. The improvement in fiscal deficit is the most important indicator of improvement in the economy. The fiscal deficit is constantly on the decline ever since this government assumed power. To improve other indicators on borrowed money cannot be termed as economic improvement.

The most painful aspect of current borrowing is that it is mostly for consumption purposes. Servicing this debt would not be possible without more debt. Debt taken for sustainable infrastructure projects generates enough income to service debt and save something for the government.

Another point worth noting is that the quantum of our exports is now lower than the remittances sent by our workers. This shows we have dispatched our rich human resource outside. This human resource would send money back home till their families unite with them in the foreign countries. The remittances would then dwindle from these workers. We have to increase our exports by at least three to four times the current level to be able to get rid of foreign assistance.

Tax revenue is the most depressing factor of our economy. Everyone agrees that at least 50 percent of our economy is informal (some say it’s 60 percent). If we formalise the informal economy, we can theoretically double our revenue (even after neglecting the short filings).

The government lacks the courage to confront tax evaders. It has in fact given incentives to the construction sector to invest black money to boost growth. The current growth is not different from the growth achieved periodically during the past three decades. The only difference is that the growth is very low.



Source: The News

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