Checking the Vital Signs of Pak Economy
By Farhana Mohamed, MBA, PhD California, USA
How did Pakistan’s economy fare since June 2013 when the Pakistan Muslim League [Nawaz Group, PML (N)] government came to power? Nawaz Sharif became the Prime Minister for the third term after a gap of almost 14 years succeeding a democratic government which completed its full term of five years for the first time. It will be interesting to go over the key steps taken by the PML (N) government in the last six months to invigorate the economy.
One of the first steps taken by the Finance Minister Dr Ishaq Dar was paying off the circular debt of Rs. 480 billion ($4.6 billion) in July to power sector companies and fuel importers. This helped ease the electricity blackouts by significantly reducing them from 18 to about 8 hours (with some scale back occurring in dry winter months). To tackle energy shortage several projects are already in the pipeline, one of the most prominent being the groundbreaking ceremony of the Thar Coal Mining & Power Project on January 31 by Prime Minister Nawaz Sharif and former President Asif Ali Zardari. In its first phase this $1.6 billion project will generate 660 MW of electricity by 2017 with several fold increase projected in the future.
Another milestone included gaining the Generalized System of Preferences (GSP) Plus Status on December 12, 2013, for three years. The GSP Plus Status by the European Union Parliament was granted after a few Members of European Parliament (MEP) fought tooth and nail diplomacy campaign including Members of Parliament Sajjad Karim and Andrew Stephenson with the Governor of Punjab Mohammad Sarwar (former British Labor Member of British Parliament) instrumental in rallying the support. According to Dr Ishaq Dar, the GSP Plus Status will help to raise Pakistani exports by $2 billion.
The Prime Minister Youth Business Loan Scheme, as part of Prime Minister’s Youth Development Program, was launched in December 2013. The project will be managed by Maryam Nawaz Sharif and entails rolling out loans of Rs 500 billion over five years. Annually Rs 100 billion will be allocated for granting 100,000 loans of up to Rs 2 million with subsidized rates of 8% to young people with ages ranging from 25 to 45 to set up small businesses. Banks issuing loans are requiring guarantors which could be problematic to youth with limited resources but, according to the government sources, applications with a solid business plan will face little difficulty in seeking guarantors. Evidence seems to support this since through January over 10,000 applications were received showing high interest among young entrepreneurs. As expected, most of the applications are from the agriculture sector and 20% of the applicants are women.
The State Bank of Pakistan in its Annual Report for FY 1012-13 released on January 15, 2014, mentions deteriorating law and order situation that has “adversely impacted the investment climate caused production losses, diverted resources to enhancing security ….and adversely impacted revenue collection.” SBP is projecting GDP growth of 3% to 4% for FY 13-14. While this GDP growth is promising, considering grave challenges being faced by the government, a much robust growth is needed such as 6% or more for Pakistan (for example, China and India’s GDPs grew at the rate of 10% and 8%) to make a visible difference.
A report highlighting government performance was released on December 30, 2013 which mentions government taking austerity measures by reducing 30% to 40% expenditures of 32 ministries and of Prime Minister’s office. An ambitious revenue collection target of Rs. 2,475 ($ 24 billion) has been set to fuel the weak economy. Improvement in tax collection will meet a key demand of the International Monetary Fund (IMF) which approved in September a low-interest three-year loan of $6.6 loan billion. According to government sources, tax receipts have already increased by 17% as compared to last year.
Failing public sector companies are siphoning off almost Rs. 500 billion annually from the national exchequer. Steps are already in progress to privatize 20% to 35% ownership of these public corporations in the next three years, to introduce structural reforms, and to overhaul their governing boards. This will also meet one of the major requirements of IMF’s bail-out package to privatize 65 public sector companies - including selling 26% shares of the ailing Pakistan International Airlines (PIA).
Recent bold measures taken by the business-friendly Nawaz government have resulted in a favorable investment climate; hence, the growing confidence among investors. This was evident by Karachi Stock Exchange - country’s biggest market index – showing a historical 55% gain and crossing the 27,000 mark. This investor confidence has not gone unnoticed by the world. In the January 3 issue of the Wall Street Journal (WSJ), Daniel Inman has written a significantly favorable article on the economic performance of the Nawaz Sharif government. Due to stellar performance by KSE and $283 million pumped into the Pak economy for the last six months of 2013, Inman has included Pakistan in the category of “Frontier Markets”along with Argentina, Venezuela and Vietnam. By the way, this article was also included among WSJ’s weekly recommendations for academic business classroom discussions.
Despite severe energy shortage and acute law and order challenges continuing to plague Pakistan, one has to appreciate the impressive results produced by the Nawaz Sharif team in little over six months. In order to keep the momentum going for a meaningful economic performance, imported and home-grown terrorism needs to be effectively controlled through the use of diplomacy with those who want to engage in dialogue and deployment of counter-terrorism force against miscreants who are on indiscriminate killing rampage of innocent and continue to challenge the writ of government.
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