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Global perception extremely poor

The current state of the economy needs urgent attention of the new administration and one can only hope that some of the attention on the 2018 elections is diverted to it. Despite the high praise that Pakistan’s economy has received from international financial institutions in the last two years, the global perception of the economy remains extremely poor. While Pakistan’s economic managers might claim some success in moving Pakistan out of the bottom-20 of the World Economic Forum’s Global Competitiveness Index, the reality is that Pakistan is still only 22 places from the bottom on a list comprising 137 countries. The picture remains a dismal one, although the government does seem to have worked towards improving it. India, by contrast, is the 40th most competitive economy, which shows a massive gap in both perception and the actual reality of the governance structure around the economy. Pakistan’s overall improvement is coupled with a low performance on the metrics of primary healthcare and education as well as labour market efficiency, where Pakistan lies firmly rooted to the bottom-10. Standing at stark contrast with these low factors, Pakistan has done much better in judicial independence as well as people’s trust in politicians. Pakistan’s politicians rank 62nd in the list of most trustworthy, but this is where questions must be raised about the methodology of the survey. A look at the political instability inside the country suggests a more complex picture that the one painted by the survey. The trouble is that since the report is based on a survey-based methodology, instead of an actual assessment of each of the sectors covered, it remains open to perception biases. But even if we admit that the methodology is flawed, there is something to be said about why Pakistan appears in the bottom pile given that any methodological problems are likely to even out over surveys in 133 countries. The survey helps identity certain problems areas that the government needs to work on to improve economic performance and perception in the short and medium term. There is a need to decide our own priorities taking cues from it. The identification of health and education and labour-related issues is another reminder that the government needs to focus on the social sector. This is simply not happening in the current environment. Pakistan’s economic managers cannot just keep pointing to macroeconomic indicators to suggest all is well. Meanwhile, the Asian Development Bank (ADB), in a routine report, while acknowledging growth has improved, urged Pakistani authorities to address fiscal and external sector vulnerabilities that have reappeared with the wider current account deficit, falling foreign exchange reserves, rising debt obligations and greater financing needs from the external sector. These issues have been repeatedly raised by media, including this newspaper, as well as qualified economists but, unfortunately, never made a visible dent in the government’s narrative that all was hunky dory during the four-and-a-half-year’s tenure of the Ishaq Dar-led Finance Ministry. It is hoped that the Abbasi administration focuses on the economy, though the challenge is to install a Finance Minister who is actively engaged in meeting the challenges that the economy faces today instead of being focused exclusively on his legal difficulties. Sadly, the noticeable trend in Pakistani administrations has been to ignore the advice of domestic experts while heeding the analysis of a foreign agency with much less awareness of the way the government is run, perhaps because of the rising reliance on foreign borrowing. Additionally, international financial institutions’ performance with respect to imposing standard normal conditionalities that are clearly not suitable for all member countries is an impediment to the success of many a programme assistance such as the International Monetary Fund’s concluded Extended Fund Facility (EFF). Examples include not taking account of the massive data manipulation during the Dar-led years, including growth rate, which were easily challenged by domestic experts as it was not rationalized with data released by other government departments as well as credible industry sources. The EFF conditions have been cited by domestic experts as inappropriate (for example, due to the inordinate focus on raising total revenue rather than on tax structure reforms), and ineffective governance reforms (insisting on raising electricity tariffs as a means to achieve full cost recovery but which disabled our productive sectors to compete internationally due to high input costs which in turn contributes to the World Economic Forum ranking Pakistan in the 115th position in the Global Competitiveness Index 2017-18). There are also charges against the Mission Leader for the EFF in failing to insist on ending seriously flawed policies, Dar’s growing reliance on foreign borrowing, for example, appeared to have enjoyed Fund’s tacit support. The most serious failing in donor analysis has been to take the budget document seriously. In Pakistan, it is fairly usual now to discount the budget almost a day after it is presented because it neither reflects what the government expects to generate as revenue (Dar is even on record as repeatedly stating that he gives over ambitious targets to the Federal Board of Revenue) or to allocate for specific expenditure items. Budget document, for example, does not help identify hidden deficits. Be that as it may, the ADB report correctly points out that the current year’s federal budget assumes that a two-thirds of the deficit financing would be generated from domestic bank and non-bank sources though with no borrowing from the State Bank of Pakistan; and adds that while the claim of a large reduction in the deficit “appears to be very difficult” to achieve yet a “continued large deficit would again require very substantial foreign financing.”

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