Thread by @MiftahIsmail

1. SBP has released its annual report. Statistics confirm a continuing economic downturn. Our GDP growth went from 5.5% in 17/18 (PMLN’s last year) to 1.9% in 18/19 and -0.4% this past yr 19/20. In 20/21 the govt expects GDP growth to be 2% and World Bank forecasts an anaemic 1%.

2. Given our population growth rate of 2.4%, in each of the three years PTI will make Pakistanis poorer on average by 0.5% (18/19), 2.8% (19/20) and 1.4% (20/21). This is not a record we can be satisfied with.

3. Inflation increased from 3.9% in 17/18 to 7.1% in 18/19 and 10.2% in 19/20 with urban food inflation at 14.6% and rural food inflation at 16.4%. Given that less well off ppl spend almost all their income on food, this is causing extreme misery on poor & lower income households

4. Research shows that our GDP needs to grow by 5 to 6% to provide employment to the 1.5 mil people entering the labour force every year. With the economy growing at 1 or 2% or shrinking, PTI has created unemployment of 2.5 mil & pushed about 10 mil people into abject poverty.

5. One reason for the rampant increase in inflation has been a fast increase in money supply. State Bank forswore buying government treasury bills directly (hence creating money) but then bought over Rs 1200 billion worth of bonds from commercial bank (thus creating money).

6. The 17% increase in money supply last year and huge increases in the price of utilities, have led to this high inflation.

The buying of bonds was perhaps necessary in order to help banks meet the voracious appetite of the government for debt.

7. The budget deficit kept increasing fast, from 6.5% in 17/18 (PMLN’s last year) to 9.1% in 18/19 and 8.1% in 19/20 (and the deficit was at 8.1% and not even higher only because the government let circular debt grow at record level and didn’t pay promised subsidies.)

8. The record high deficits in PTI’s two years led to the largest increase in public debt ever seen. The government increased gross debt by Rs 11,444 billion in two years (compared to Rs10,661 billion by PMLN in 5 years). Our Debt to GDP has gone from 72% to 87% in two years.

9. Similarly Total External Debt & Liabilities to GDP has also increased from 33.4% in June 18 to 45.5% in June 20. Our ratios of Total Debt and External Debt and Liabilities to GDP are now increasing at a dangerous clip.

10. The govt also failed to increase tax collection. Against last year’s target of Rs 5555 billion it only raised Rs 3950 billion, although covid probably hindered in the collection of Rs 300 to Rs 400. And this after additional tax measures of Rs 700 bil and inflation of 10%.

11. This year the revenue collection target is Rs 4950 billion but again the trend seems to suggest Rs 4300 billion, absent a mini budget. Given the huge devaluation, which make revenue collection much easier, this government’s revenue collection record has been abysmal.

12. In the first quarter of last year budget deficit was 0.4% of GDP. This fiscal year (20/21) is it already 1.1% of GDP so we may end up with another year of over 8 or 9% of GDP budget deficit. This huge deficit (or dissaving) cannot be good for capital formation or investment.

13. Exports in 17/18 were $24.75 bil & decreased in PTI’s first year by $500 mil & decreased again last year (in part due to Covid) by another $1.8 bil. 1st quarter of this year they were below last year level. PTI hasn’t been able to improve exports even after a 40% devaluation

14. Our imports have however been curtailed due to devaluation, historic reduction in world oil prices, slowing down of the economy and increases of custom duties. The precipitous decline in import has turned our current account into a surplus.

15. Happily during the last five months our remittances have also substantially increased. This is expected to last at least until covid-related travel restrictions wane.

The current account surplus is expected to turn into a deficit when the economy picks up & imports rise.

16. This will further pressure our forex reserves. Our reserves right now are $12 bil, of which $4.9 bil are due to short-term swaps, & another $7 bil is in dollar deposits by friendly countries. This is quite a precarious position and demands that we restart our IMF programme.

17. The IMF is rumoured to be asking for two things: reduction in the huge and burgeoning budget deficit and power-sector circular debt. The reduce the deficit, government should take steps to cut expenditures and increase revenues without introducing new taxes.

18. It should also try to reduce circular debt by collecting more bills (currently at 87% vs 93% under PMLN) and reducing T&D losses (currently at 19% vs 18% under PMLN). It should not take the easy way of increasing taxes & power tariffs. This will put the economy in a tailspin.

19. The people of Pakistan are still paying for the imprudent policies of PTI, including rapid devaluation, huge increases in power and gas tariffs, excessive increase in interest rates, crony capitalism (sugar, wheat, medicine, etc) and general incompetence.