When the PML-N came into power, the economy wasn’t in very good shape. In order to reduce the damage to the economy, the government derived a plan along with the support of the IMF and the main focus of the government was to bring about energy reforms, to improve the external balance and to stabilize public finance. The plan, if successful over the tenure of the government is likely to raise the economic growth of the country to 5% per year allowing inflation to be brought down to 6% as well from the previous double digits. It would also help in reducing the fiscal deficit points to 3% of the GDP and to also bring an increase in the international reserves of the country to more than $20 billion.
While these may have been the main focus of the government, the main question is to what extent has the government been able to live up to the promises it has made?
While energy continues to be the priority of the government, little is being done to show just what efforts are being made. Daily power cuts are experienced by citizens and business owners alike due to the lack of electricity. Various industries have been negatively impacted due to which production only occurs at 50-60% of its capacity. With an increase in the amount of electricity provided, not only would production increase but an increase in the growth rate would also be experienced without there being any requirement of additional capital.
While the demand of electricity in the country is around more than 25,000 MW, the power plants do not seem to be meeting this requirement and not enough work is being done to improve the gap. Physical capacity is what needs to be increased, however, this is considered to be more of a long term proposition as developing new power plants and investing in alternative sources of energy is time consuming and costly as well. The Diamer-Basha Dam for example is one which is likely to take 8 years for completion and will provide 4,500 MW to the national grid in the country. The supply of power too is something, which needs to be increased from power plants, which already exist, however, this would involve increasing the electricity rates for example, reducing line losses, collecting payments and eliminating any circular debt.
The government, however, can certainly claim some credit for having brought down the fiscal deficit, which is also in accordance to the plan derived with the IMF. The agreement states the country to bring down the deficit from 8% to 5% of the GDP in the 2013-14 fiscal years, a benchmark, which the government managed to achieve. The government also agreed to increase the tax ratio by 1% of the GDP every year for the next five years to bring it up from the 10.4%, which was recorded in 2013 and seen to be the lowest figure in the region of South Asia. In order to achieve this, the government was to introduce some new taxes, however, the main effort, which the government had to make consisted of improving income and sales tax collection by eliminating any kind of exemptions or concessions provided and by expanding the tax base. The government has unfortunately not been able to experience any progress along these lines.
Amongst other promises, the government also planned on reducing subsidies with energy subsidies in particular, which were coming out to almost 2% of the GDP. A program was also announced on reforming enterprises owned by the state and whose losses were found to be amounting to 1.5% of the GDP in the previous year. Privatization of almost 65 of such enterprises was to be conducted while larger ones were to be re-structured which included Pakistan Railways, PIA and Pakistan Steel Mills.
To reverse the loss of foreign reserves, efforts were also made to secure an adequate amount of external financing from international capital markets, donors and other financial institutions, which included the IMF. The arrangement with them consisting of $6.6 billion was one such effort made and seen to be a breakthrough while the World Bank as well as the Asian Development Bank helped out the nation with some additional financing. Amongst the Gulf countries, Saudi Arabia too provided their longstanding financial support to the county and granted a total of $1.5 billion. Furthermore, the government also managed on earning $1 billion through the sale of Sukuk and also managed to sell Eurobonds worth $2 billion.
While the government hasn’t managed in doing well in terms of some of their promises, it has certainly managed to build up foreign reserves of the country. Furthermore, appreciation of the rupee was also experienced along with a reduction in fiscal deficit, an inflation rate lower than what was expected and an improvement in the private sector credit take off. While slight improvement has been experienced, the outlook for the financial year 2015 seems to be slightly better.
Not only has the government succeeded in building up a foreign exchange reserve of $15 billion, exporters to the country will also not face much difficulty with regard to payments due to them for their goods and services. Exports are also likely to come to around $27-30 billion along with the rupee continuing to stay strong as well as a further decline in the rate of inflation. While the country still has a long way to go and while the government may not have managed to uphold each of the promises it has made, some improvements can be seen despite the constant efforts against other parties to overthrow the government and continued security threats. Despite these, with the government being able to reduce the rate of inflation and with efforts successful in appreciating the value of the currency and further declines in the price of petrol and electricity, let’s see what the government has planned and how they perform for the upcoming year.