A discussion regarding the state of economy and the federal budget (2021-22) took place on Friday, June 18, 2021. The guest speaker for this discussion was Dr. Ishrat Hussian. Our guest speaker is no stranger to the institution, having served as the Dean of IBA from 2008-2016. Over the years served, Dr. Ishrat Hussain carved his legacy onto the walls of IBA. His most notable accomplishments as the Dean include building both campuses of IBA.
An increase in the GDP? But how?
As the discussion progressed, the current Dean of IBA, Akber Zaidi, asked the question of the evening: how a 3.94% GDP growth was achieved. Does this prediction vary drastically from reality? To give background, the detriments faced by the government, such as the consequences of COVID-19, were somewhat of a double-edged sword. It gave no rest to the government yet was used increasingly as a crutch for failure. Moreover, in the wake of the pandemic, food inflation severely hit low-income earners. Also, power prices hit an all-time high during the pandemic, along with 20 million people who lost their jobs in the last two years.
Not to mention the effect of the rupee devaluation on the import bill. And its expected rise due to oil consumption increasing following the end of lock-down. To argue that its inflationary effect on the economy is worrisome is an understatement.
Dr. Zaidi questioned a series of claims made regarding the rise in GDP. For instance, claims such as crop growth being the reason behind the rise, when an alarming 21% decrease in credit disbursement towards the agricultural sector was recorded. The numbers indeed do not match. Additionally, the original tax collection of 4.7 trillion rupees was expected to spur GDP by 2.1%, yet GDP has almost doubled that prediction. However, the original tax collection prediction is far from achieved.
Perhaps it is the leniency of the IMF that allowed for GDP growth?
All these important questions regarding the questionable growth were raised in discussion with Dr. Ishrat Husain.
A New Direction
Disclaimer: Dr. Ishrat is not an authority speaking on behalf of the government, only giving his comments.
From the view of economists, the previous momentum is integral in determining future outcomes. Imran Khan’s government inherited a current deficit of $20 billion in 2018, amounting to 4% of GDP. The new government required a total of $28 billion in external payments.) A short-term solution was needed for the crisis: austerity. But how could this possibly boost GDP? Let’s take a look at some of the approaches.
To answer Dr. Zaidi’s comment on tax collection, Dr. Ishrat highlighted a surprising success from the FBR. A collaboration between the NADRA, the banking, and taxation database was created to generate profiles of every citizen’s transactions to match declare income with expenditure. This automation captures profiles with suspicious activity and creates transparency from the FBR.
The success of this system has allowed the FBR to reach, if not surpass, its revised target.
Now, Dr. Ishrat drew attention to the popular approach of privatizing every failing industry. He believes a more attainable solution would be to allow private management to run it instead. The present government has adopted this in its railway and air travel projects. The outcome contradicts the notion of public spending crowding out investment for the private sector, rather bolstering the latter.
Cracks in the Budget
However, one criticism from Dr. Ishrat arose regarding the NFC award and 18th amendment . The purpose of the commission is to divide resources between federal and provincial governments. In the view of our guest speaker, this devolution is incomplete. Unless local governments are empowered as well. Therefore, it is crucial for every municipality to have an efficient local governance in order for the entire province to function smoothly. People affected by local issues can find solutions best suited to their principalities.
Notably, the minimum wage was increased to 20,000 and BISP coverage almost doubled, and loans to SMEs increased. Moreover, the growth target for the next fiscal year is predicted at 4.8%, with no structural reforms, however. While public sector spending has been fed a spoonful, it begs the need for efficient outcomes. But is this spending sustainable? Can the government afford it? The fiscal deficit figures leave little space to entertain this spending spree.
Hear this. You’ll understand why structural reforms are necessary. The electricity consumed by 24 out of the 30 million users receive subsidized electricity prices. Dr. Ishrat recommends targeted subsidies to reform this. Using the database from Ehsas in order to determine which households deserve these subsidies using poverty score cards, an efficient allocation can be achieved. Hence, saving on public debt.
Closing Comments with Dr. Ishrat
Conclusively a hopeful look into the future encompassed the end of Dr. Ishrat Hussain’s discussion. To wrap up, questions from the audience were taken. Furthermore, the discussion also shed light on the technical issues within the budget that could harm the country’s economy. Therefore, such discussions allow students like you and me to understand Pakistan’s economy better.
