Thrown into a Recession Spiral


As we had warned prior to the ‘vote of no confidence’ (VONC) in March 2022, the PDM government’s economic blunders are extracting huge costs on the economy and its citizens in the shape of record high inflation, record unemployment, free-falling currency, and the economy teetering on the edge of a default.

The epic failure of his ‘dollar peg’ has caused immeasurable loss to the economy as its fallout can be clearly seen in the economic data, with the State Bank of Pakistan (SBP) reserves falling to $3.7bn (20th Jan), which is hardly three weeks of import cover. The PDM government has brought the economy to the brink of a default, with exports declining 7%, remittances declining by 11% and FDI down 59%.

The PDM has unleashed a tsunami of inflation that has never before been recorded in our 75-year history. Inflation has averaged 25% in the Jul-Dec FY23 period, compared to inflation of 10.8% under the PTI government (Jul to Mar FY22). As a result of the ‘Dar peg’, a second wave of inflation tsunami has been unleashed. Experts including Dr Hafiz Pasha have warned that inflation will rise to 35% in the days ahead due to measures of the PDM government.

Low investor confidence, record-high cost of doing business, and draconian tax measures and import restrictions are dragging the economy into a recession at ‘Shehbaz’ speed. The Large scale manufacturing sector posted a decline of minus 3.6% during Jul-Nov 2022, and 20 out of 25 industries posted negative output. The PDM regime has successfully pushed the economy into a recession with millions of workers facing a risk of unemployment and poverty. Dr. Hafiz Pasha forecasts negative -1% GDP growth in FY23 as a result of the PDM government policies.

Post-July, the outlook has deteriorated further as a result of the super floods. The loss of crops, livestock, and livelihoods of more than 30 million flood-affected citizens will have a significant impact on the growth outlook. Despite the misery facing the people, the PDM government remains focused only on wasting scarce taxpayers’ money on running the largest cabinet in history with more than 77 ministers / SAPMs, unending pleasure trips abroad and giving relief of billions to their own leadership.

PDM edited | ThinkTank from Narratives Magazine

In 2018, the PTI government inherited an economy on the verge of default with a $20 billion current account deficit (CAD) and less than $ 10 billion of SBP reserves. To give context, CAD in 2022 is estimated at $ 17.5bn and SBP reserves were over $ 16bn when the VOCN was moved in March 2022. However, unlike the PDM government, we were able to turn around the economy to outperform the global and regional markets post-COVID pandemic. We achieved this through reforms aimed at addressing the core issues of our economy, namely the investment-saving gap, the revenue-expenditure gap and through measures to enhance productivity across the agriculture and manufacturing base.

The investment-saving gap as manifested through the CAD was brought down from $ 20bn (7% of GDP) in 2018 to $ 1.8bn in 2021. This was achieved through strong growth in exports of goods and services and record remittances from the overseas Pakistanis. The commodity super-cycle in 2022 has led to widening of the CAD, with international oil prices at the highest levels since 2011. Yet, even despite record high oil prices, CAD in 2022 is estimated at $ 17.5bn (4.5% of GDP), which is still below the 2018 levels.  Exports of goods reached record levels of $32.5bn, compared to $24.2bn in 2018. Exports of the IT sector doubled to over $2.5bn, from less than $1bn in 2018.

The revenue-expenditure gap was addressed through reforms to broaden the tax base and enhance compliance. Reforms included targeting the retail sector through the point of sale machines, the single window operation for customs for reducing under invoicing and the track and trace system for the big industries including sugar, cement, tobacco and steel. As a result of these reforms, the FBR collected over Rs6.1 trillion in FY22, a growth of over 26% despite keeping GST on petroleum products at 0%.

The PTI government economic policies led to a significant increase in productivity across the agriculture sector and the manufacturing activity. This can be seen with the record crop output and record growth of the manufacturing sector in the last two years. Large scale manufacturing (LSM) posted an 11.7 percent increase, with record exports of $ 32bn.

The inclusive growth strategy adopted by the PTI government with focus on labour intensive construction, export industry, SMEs, tourism, and agriculture has led to the creation of 5.5 million jobs in the first three years, the highest by any government on record. On average 1.84 million jobs per year were created under the PTI, which is significantly higher than PPP (1.4mn) and PMLN (1.1mn). Data shows that we would have achieved the 10 million jobs that were promised by Imran Khan in the 2018 manifesto.

Inclusive growth entailed providing incentives to those middle-income households, small farmers, youth, women and entrepreneurs that are marginalised in the current system of trickle down growth. The Low-Cost Housing Programme (MPMG) and the Kamyab Pakistan programme (KPP) success can be seen in the numbers. According to the SBP, over Rs450bn has been disbursed by June 2022, from Rs150bn end of 2019, under the MPMG program, benefitting more than 30,000 first time home buyers across Pakistan. Similarly, the Kamyab Pakistan Programme of interest free loans helped to uplift incomes and livelihoods of millions of low and middle income households.

In line with Imran Khan’s vision of a Riyasat Madina, extraordinary measures were taken to scale up Ehsaas spending for the poorest households. During COVID the government provided cash assistance to 15 million households (45% of total population), making it the largest social welfare transfer in Pakistan’s history. The landmark universal healthcare programme ‘Sehat Insaf Card’ coverage was enhanced in 2021 and now covers all citizens of KPK, Punjab, Islamabad, GB, AJK and certain districts of Sindh and Balochistan. As a result, citizens benefit from free hospitalisation and healthcare, providing savings of Rs10 lakh to each family.

It was the success of Imran Khan’s policies and the fear of his growing popularity that the PDM leadership schemed to topple our government, with the help of their facilitators. It is now obvious of all citizens that the only agenda of the PDM leadership is to protect their ill-gotten wealth through weakening the accountability laws and institutions. The PDM leadership has no agenda for the welfare of the people.

The only solution to the country’s economic woes is to hold free and transparent elections. If the PDM government is allowed to continue any longer, the economy will reach a stage where it will be impossible for anyone to rescue it.

Shaukat Tarin
Shaukat Tarin
The writer is a leading banker, who served as Pakistan's finance minister twice.
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