The PTI Government Celebrated Its First Anniversary

The PTI government celebrated its first anniversary on August 18. Last year there was a constant debate about the performance or non-performance of the new government in relation to the economy. Unfortunately, most of this discussion was not actually based on my economic lessons, so it was not only very unilluminated, generating more heat than light, but also causing confusion and deepening dominant uncertainties.

PML-N's inadequate or political scoring

Some of the criticians who have participated in this terrible national debate have biased some deliberately and agenda in favor of criticizing PML-N's inadequate or political scoring. For many others, the debate is a lack of information, a lack of context, or a thorough alert. The 'reporting regime' has the greatest impact when assessing or discussing important parameters of the economic situation.

The decline in rupees, the impact on the stock market, growth and inflation, the country's sharp increase in debt stocks. Let's look at the first three of these. The exchange rate, like any other unlimited market, is a 'price' determined by the interaction of supply and demand. From this point of view, investigating the supply and demand of the dollar will put the rupee's movement in context last year. The existing wisdom for the economy is broad.

In July 2018, at the beginning of the 2018-19 fiscal year, the situation for the country's future year (dollar demand) is as follows. The total external funding requirement was about $ 27 billion. The planned short-term outflows (foreign exchange swaps, central bank debt) not included in the above total amounted to an additional $ 7 billion.

Thus, total dollar demand in 2018-19 was about $ 34 billion. It should be noted that these demand estimates do not include the need to build forex reserves of at least $ 6 billion to $ 8 billion.

On the supply side

SBP's reserves on July 1, 2018 amounted to $ 9.8 billion. It is likely that this amount would increase during the year due to the inflow of foreign currency from FDI and external loans, but without the IMF, their timing and size are still uncertain. Thus, in order to achieve all practical purposes, there was an excess demand of more than $ 24 billion in the national exchange market. Given the gap between dollar supply and demand on an unprecedented scale, the reason why the rupee went down when the SBP withdrew support should not be a mystery (because the reserve reserves were not exhausted.

While much smaller on what happened in Thailand and Indonesia during the 1997 East Asian crisis, this is repetitive. But senior commentators, including prominent economists, practitioners and opinion influencers, continued to go against the government's decision to 'devalue' Rupee as if there were choices. The last point about Rs points out that intentional confusion is spreading by factors that try to bias criticism from PML-N's terrible economic management, which is directly responsible for this crisis.

In 2017-18, foreign exchange reserves had already fallen from $ 11.6 billion to $ 9.8 billion before the PTI government took over. Indeed, in July 2018, a month before the PTI government was established, there was little agreement on the financial market that rupees would fall from Rs180 per dollar to above Rs200. This is clear evidence that a mess has already been made before the PTI government took over.

The situation has worsened in many situations due to government policy mistakes, but the sharp adjustment in the exchange rate is the root cause of the evaporation of trust, the surge in inflation and policy interest rates and the resulting economic slowdown.

Growth

Another universal criticism of government is that economic growth has stopped. In a situation where the country is experiencing the most serious economic crisis of all time, these expectations are totally wrong when viewed in various crisis situations, regardless of the experience of many countries or Pakistan. In Anatomy of Crisis '' (July 19), in the previous column of Dawn, `` Decreased trust in economic agents, a sharp decline in access to credit, a sharp decline in purchasing power due to currency depreciation, and related inflation.

It is amplified by defensive policy measures that need to be taken high interest rates, taxation measures, reduced spending. As a result, communicable disease impacts will soon be transferred from the financial markets to the real sector. There is a large loss of production, which leads to unemployment.

Between 2008 and 2016, the Greek economy fell by more than 29%, while Ireland faced an economic contraction of nearly 10pc in 2008-09 after the global financial crisis. The Spanish economy declined more than 9pc between 2009-13. Pakistan's experience with the 2008 crisis is that in 2009, economic growth slowed sharply to 0.4pc and large manufacturing contracts were 4.2pc.

Stock market

There is a similar disconnect between the experiences of various countries facing the economic crisis and the expectations of local market participants, so the stock market must somehow ignore the historical pattern. Faced with a large currency devaluation, the Indonesian JCI index plunged more than 50pc in 1997, and the Argentine stock market has fallen 31pc since January 2018, highlighting two examples.

None of this is intended to suggest that the government has dealt with the situation without being blamed or that there is very little that can be done other than 'waiting'. The economic team did something bad in some ways and decided not to take serious policy mistakes right away. However, most of the criticisms faced by the government in relation to the economy last year are wrong, not based on facts or out of context.

The author is a member of the former Prime Minister's Economic Advisory Council and leads macroeconomic advisory to Islamabad.

The Federal Board of Revenue

Federal Board of Revenue (FBR) introduced several income and administrative measures in its last budget, but missed its revenue collection target in August, the second month of the new fiscal year, with a profit margin of 50 billion rupees. This deficit, in addition to the first month of the current fiscal year (140 billion rupiah in July), recorded a deficit of a total of 600 billion rupees in two months of the current fiscal year. Contrary to the goal of 350 billion rupees planned in August 2019.

The FBR has temporarily raised 220 billion rupees. This is much lower than government expectations in light of record collection claims. Prime Minister Im Ran Khan removed the FBR chair in May and found that the payback was heading for a record shortage. To achieve the ambitious profit target of Rs5.55 trillion on May 10, Khan appointed Shabbar Zaidi as FBR Chairman in the private sector, overturning the downward trend in import trends.

In the current two months of the current fiscal year, the total deficit reached 64 billion rupiah In August, the customs competition of 600 billion rupees amounted to Rs 130 billion. In the first month (July) of this fiscal year, a tariff shortage was recorded at 9 billion rupiah. Compared to last year's figures, the customs collection dropped 1.88pc to 55 billion rupees last year.

Inland Revenue Tax

An income tax, sales tax, and federal consumption tax (FED) – collections amounted to 290 billion rupees, reaching 250 billion rupees, indicating a lack of about 370 billion rupees or 12.58pc. Income tax collections increased to Rs 92 billion, but it was 16.36 pcs, which was estimated at 110 billion rupees or 160 billion rupees this month. The sales tax collection amounted to 142 million rupees, compared to the projected target of 155 million rupees in the same month, which appears to be short of about 1.7 billion rupees or 10.75pc.

Similarly, the FED collection recorded 18 billion rupees of clock compared to the goal of 19 billion rupees, and was found to be short of 2 billion rupees or 10.5pc. However, in August of this year, the collection of next year's IRS collection improved slightly compared to the previous year's collection. Last year, it recorded 26pc growth, with revenues of 255 million rupees in August, which was 185 million rupees in the same month.

Further analysis showed that the Inland Revenue Tax, which amounted to Rs 110 billion in August 2018, increased to Rs 125 billion in August 2019, an increase of 39 pcs. This growth is mainly achieved by a 39pc income tax collection, 43pc sales tax, and 46pc FED.

In contrast, domestic tax revenue from imports increased by 11pc, to RMB 89.8 billion, compared with RMB 88.8 billion over the last two months of the fiscal year. This was mainly achieved by a 17pc increase in sales tax, as income tax recorded negative growth of 16pc at the income level.
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