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The year 2017 started on a positive note. Economy was growing, inflation was
low, the rupee was stable, CPEC was progressing, Pakistan’s credit rating had
improved, and the stock market was racing. There was hope for better times.
Political chaos hit the economy, and hit it hard. The chaos gained momentum
with the formation of the Panama case JIT in April and then culminated with
the Islamabad sit-in by a faction of the religious right in November.
The prolonged chaos changed the once hopeful sentiment. The economic
narrative shifted to fiscal deficit, trade deficit, rising debt, setbacks for CPEC,
an overvalued rupee, and a sliding stock market. Pessimism sidelined hope.
The State Bank of Pakistan’s (SBP) State of the Economy also agreed: “The
real GDP growth in FY17 was the highest during the last ten years. It was led
by a rebound in agriculture and a broad-based increase in value addition by
services sector.”
That surely does not mean that the price level of essential goods is within the
reach of common Pakistanis. What it means is that these essentials did not
move much further out of their reach.
The share of population of Punjab and Sindh decreased while that of Khyber
Pakhtunkhwa and Balochistan has increased.
According to the Word Bank, Pakistan is the sixth most populous country
following China, India, USA, Indonesia and Brazil.
SBP says that the prospects of achieving the 6pc target of real GDP growth
continue to be strong due to the availability of cheaper money and higher
credit off-take by the private sector. Critics are bound to be divided on
whether this is feigned optimism by SBP or an objective analysis.
The credibility of economic data in Pakistan in general has long been subject
to debate. But the unemployment number stands out because of the
incredulity surrounding it.
The army of applicants applying for every advertised job in 2017 surely does
not suggest unemployment is low. In one of its report, marketing research
firm Nielsen puts the employment rate at 51pc, leaving the unemployment
rate much higher.
There will inevitably be issues regarding definition and measurement
techniques, but the wide gap between the public and private sector estimates
leaves one scratching one’s head as to what the unemployment rate really is.
It has been a surreal experience watching all the key policy makers get
replaced in a matter of months. The economic challenges were mounting, the
economic leadership was conspicuous by its absence, and no one was
counting the cost of political uncertainty.
The largest sector under CPEC is energy, where shortages have long been the
bane of our economy. The government is now examining a proposal to replace
the US dollar with the Chinese yuan for trade between China and Pakistan.
All, however, is not reported to be well with CPEC. There have been news
items about potential setbacks with calls for greater transparency.
The World Bank’s Migration and Development Brief says that Pakistan had
witnessed 12pc growth in remittances in 2015, which moderated to about
2.8pc in 2016 and is expected to grow by a meagre 1.4pc in 2017.
SBP’s forecast for remittances for the current fiscal year is between $19 and
$20 billion. The SBP in collaboration with Pakistan Remittance Initiative has
introduced Asaan Remittances Account to help move traditional over-the-
counter cash transactions to formal banking channel.
Remittances during July to October 2017 have reportedly grown by 2.3pc and it
is an open debate if the growth has slowed down as much as anticipated.
The tax rate on capital gains on securities was increased to a flat 15pc for filers
and 20pc for non-filers regardless of holding period.
A super tax of 4pc for banking companies and 3pc for persons other than
banking companies earning more than Rs500 million was extended to 2017-
18.
How the Federal Board Revenue has gone about increasing tax revenue has
been criticised and the Board continues to be assailed for corruption. If critics
are to be believed, the government is now set to miss all the major budget
targets including the GDP growth of 6pc, containing budget deficit of 4.1pc,
and increasing tax- -to-GDP ratio of 13.7pc.
Later in the year, Pakistan’s weight was further reduced during review of
MSCI indexes. After rising 46pc in 2016, the KSE-100 index has fallen by more
than 25pc from the all-time high it hit in 2017.
The market price-to-earnings ratio has slid down to about nine times but
investors seem uninterested. On the bright side, in a welcome break from the
past, and despite the very large movements in the market, there have been no
chain defaults.
Chinese acquire strategic stake in PSX
In a leap forward for PSX, its stock brokers sold 40pc of their shares for US $85
million to a consortium of Chinese securities exchanges, Pak-China
Investment Company, and Habib Bank Limited.
Following the strategic investment, PSX also got listed on itself though there
was limited investor interest in its shares during the book building process.
Many investors in Pakistan are still trying to get their head around the fact
that the exchange itself has become a listed company.
While details about the wrong doings remained sketchy, HBL agreed to pay a
fine of $225 million. It is a huge amount, but still less than half the $630
million that the US authorities had reportedly assessed.
Interestingly, news that all was not well at HBL’s branch in New York had
been appearing for a few years but had not gained public attention. HBL
announced that its president and CEO is bowing out and so is its branch in
New York.
This was a mega project many years in the making. The new act focuses on
abolishing unnecessary requirements and benefitting from the use of
technology. It envisages a softer regime for companies without public
interest.
Among its many features are mandatory minimum quotas for women
directors and persons with disabilities . This act will continue to touch each
of the roughly 80,000 companies registered in Pakistan and the lives of
millions of Pakistanis for many years to come.
IMF says Pakistan has the potential to reach a tax-to-GDP ratio of 22pc but it
remains just that: unrealised potential. New records of trade deficit were
being set with such frequency that it became difficult to keep up.
“Never before in the country’s history have imports been over two-and-a-
half times of exports as they are now,” lamented an observer, as trade
balance worsened. The ratio of gross public debt to GDP, as reported by the
SBP, remained above 60pc.
The oversubscription and competitive yields of the issues show the creditors
of Pakistan are less concerned about our economic challenges than some of
the local economists.
But early in December, “the State Bank launched what appeared to the rest of
us like an ambush” and the rupee, that opened at 105.5 against the dollar,
quickly hit 109.5, and has remained volatile since. Devaluation is not without
consequences but it is uncertain by how much it will fuel inflation.
As per the Pakistan Council of Research in Water Resources, Pakistan may run
dry by 2025 if the present conditions continue. In another report by Institute
of Public Policy, there are five challenges on the supply side: water scarcity
resulting from higher demand and diminishing capacity of reservoirs,
excessive conveyance losses, deteriorating infrastructure, high operation
costs and an excessive groundwater use.
The Supreme Court called upon the chief ministers of Sindh and Punjab
expressing concern over the lack of availability of potable water.
We are talking about less than 1,000 people and just about Rs1 crore in the
whole country. But the media outcry it generated was indeed huge.
On the bright side, the media outcry created more awareness about cyber
crime than the National Response Centre for Cyber Crime under the FIA
could ever expect to achieve through its awareness activities.
They put their ambition, their ego, and the glory of their institution above
that of Pakistan. None of them came out a winner.
Be it any party or the parliament, the judiciary, the army, or the media, all
have suffered reputational damage during 2017. But there has been one clear
loser: Pakistan.