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IPR flays IMF’s review of Pak economy, predicts slow GDP growth

IPR flays IMF’s review of Pak economy, predicts slow GDP growth


LAHORE: A renowned economic think-tank has criticised the IMF review of Pakistan’s economy, which calls it ‘a process of continuation of gradual recovery of the economy in 2015-16.

The Institute for Policy Reforms, in a statement, predicted that the GDP growth rate will not exceed 3 per cent in 2015-16 due to a number of developments which could negatively impact the growth rate, including cotton crop failure and shutdown of Pakistan Steel Mills.

The IMF has claimed that the GDP growth rate has risen from 3.7% to 4.2% which is expected to rise further to 4.5% in 2015-16. According to the IPR, the IMF claim is wrong because the cotton crop has failed and output is likely to be down by over 18%.

“This alone can reduce the GDP growth rate by one percentage point, given the role of cotton in the national economy. Exports have plummeted by over 14% in the first six months. Imports have grown in overall quantity terms, thereby adversely impacting on production in import-substituting industries. Further, the largest industrial plant of Pakistan, the Pakistan Steel Mills, is closed.”

According to the fact sheet, the second important statement by Mr Finger, the Mission Chief, is that `over the last decade or so poverty has come down in Pakistan`. This is probably true for the fast growth period from 2003 to 2008. But, thereafter, the rise in per capita income has been low at about 1% annually and the unemployment rate has gone up from 5 to almost 6%. In addition, real food prices have increased cumulatively by 31% over the last decade and nutrition standards are down to crisis levels. Given these developments, it is unlikely that poverty has fallen. According to some estimates (e.g. by SPDC) the number of poor is increasing annually by over three million. The pressure for fiscal contraction under the IMF program has probably been one factor contributing to the recent increase in poverty.

There are also a number of factual inconsistencies in the statement by Mr Finger on the state of public finances. He asserts that `the reduction in fiscal deficit is a major achievement of the programme`. The fiscal deficit is projected to come down to 4.3% of the GDP in 2015-16 from 8% of the GDP in 2012-13. However, in the latter year, there was a retirement of circular debt of the magnitude of 1.4% of the GDP. Currently, these liabilities have exceeded 2% of the GDP and inclusive of this the fiscal deficit will reach at least 6.3% of the GDP in 2015-16. This indicates that the underlying magnitude of the fiscal deficit remains high.

IPR fact sheet describes that there is also a statement that `the number of taxpayers has increased by more than 200,000`. Analysis of the tax directory for 2013 and 2014 respectively reveals that the number has increased by 65,283 or 8% only. Further, it is asserted that the `number of audits and also the collection through audits has increased`.

Actually, the peak collection from demand following audit was attained in 2011-12 at Rs 130 billion, equivalent to 17.6% of total income tax revenues. It was lower in 2014-15 at Rs 116 billion or 11.1% of collection. The IMF mission chief also states that `Pakistan collects 11% of GDP in tax revenue. This is significant improvement from where it started at the beginning of the Program`.