Spearhead Analysis – 23.12.2014
By Abdulla Wasti and Saman Tariq
Research Analysts, Spearhead Research
While the masses are facing grave issues such as load-shedding, gas shortage, inflation, unemployment and terrorism, the government claims that it is sensibly utilizing the available resources to resolve these issues. In a print advertisement on December 11, 2014 the federal government asserts that developmental promises are being delivered, shaping a prosperous Pakistan for the general public. We take a look at these claims and try to analyze the role played by PML (N) in these achievements, assessing the need and viability of future projects such as Casa-1000, Hazara motorway, construction of 1000 schools and Green Line project.
Reduction in Fuel Prices
The federal government of PML (N) takes the credit for reduction in fuel prices by 25 percent to the level of 6 years back but it is rather due to the fall in global oil prices to a five year low. Furthermore, as opposed to 25 percent reduction in Pakistan, the price of oil has now fallen around 40 percent internationally. The government therefore has passed on only 75 percent of the reduction in the international price of oil to consumers. There is a further decline expected from January 1, 2015 but it is yet to be seen whether the government passes on the entire impact of the international oil price reduction onto the general public or not.
Low Inflation Rate
Another thing the government is proudly taking credit for, is the low inflation rate measured at 6.45%. However, there is not much the government has done in this regard, because this drop in the inflation rate has been mainly caused by the sharp drop in oil prices. Furthermore, it is also believed by some that that inflation data understates the true extent of increase in prices and is manipulated to present a positive view of the economy by the government in power. The International Food Policy Research Institute (IFPRI) claimed that there were certain errors in the CPI computation in Pakistan. According to their report, there were differences in the consumption pattern and price impact sustained by rural and urban households, the CPI reflected mainly the rate of inflation in urban areas and overlooked rural settlements. Thus, such things have to be taken into consideration when studying the inflation figures.
Last month, the Pakistani government raised $2 billion in Eurobond debt. They managed to raise $1 billion for 5 years at a fixed coupon of 7.25 percent, and raised another $1 billion for 10 years at a fixed coupon of 8.25 percent. While the government advertised this as a huge success, eyebrows were raised over the high interest rates. Government officials further stated that this successful issuing of bonds reflects the confidence investors have in the Pakistani economy. While it is all well and good that the bonds have been issued, the pressing concern is whether the government can afford to pay the loan back on such high interest rates? Judging from the past, it might be forced to increase taxes or take further loans; which would push the economy further down the rabbit hole.
Keeping in mind that agriculture is the engine of growth, the Economic Coordination Committee (ECC) approved to compensate farmers of basmati rice @ Rs5000 per acre for which federal as well as provincial governments would provide Rs10 billion subsidy. While this is certainly a good initiative taken by the government to support the farmers, doubts remain whether the government is in a position to provide such subsidies taking into account the fiscal deficit issues. Moreover, there are other factors that seem to be affecting rice exports as well. One of the main reasons due to which India is ahead of us in rice exports is that it has a better processing procedure when it comes to rice manufacturing. Even though, in terms of quality the Pakistani basmati rice stands up to the Indian one. Therefore, in order to increase rice exports; the government should look into such matters as well.
In a positive move, government increased wheat support price for the year 2014-15 by Rs. 100 per kg as well as announced a subsidized universal tariff for tube well at Rs. 10.35 per unit. Some critics are of the view that the increase in wheat support price is a counter move to PTI led sit-in as most of the farmers especially in southern Punjab supported Imran Khan. Earlier in March, Finance Minister Ishaq Dar had himself rejected the farmers’ plea for an increase in wheat support price. While PML (N) took this decision to facilitate the farmers amid an increase in prices of inputs, it would be at the cost of end consumers.
Stable Economic Outlook and Stock Market at Historic High
It is being projected that Pakistan’s economy has shown some ‘glimmer of revival’ under the current government of PML (N) as Moody’s Investors Service revised the economic outlook of Pakistan from negative to stable. The report stated that the country’s foreign exchange reserves had significantly improved and its current account deficit was also under control. However, the credit rating only shows a country’s ability to pay back loans and the report further added that the issuance of euro bonds had given a support of 2 billion to Pakistan’s economy. Similarly, while stock market witnessed a historic high, crossing 32,000 points, there are many other factors involved in the performance of KSE. The global decrease in prices of gold and oil is believed to have increased the investor confidence to be able to make quick profit through stock exchange.
The government claims that the transparent auction of 3G and 4G auction yielded $ 1.18 billion and to give credit where due, there were no irregularities reported during the auction. Contrary to this, the project to grant aid to IDPs through telecom financial services (such as easy paisa, mobi cash etc) was handed over to Zong without prior requests for proposals advertised in newspapers as per PPRA’s rules. PPRA is the body which prescribes and monitors regulations for public procurements by the Federal Government. According to unconfirmed sources, the project was handed over to Zong by the Minister of IT without any advertisement due to pressure from the Chinese ambassador but the Chinese company failed to deliver.
Reduction in Corruption
There is another advertisement by the government which boasts that there has been reduction in corruption acknowledged by Transparency International’s Corruption Perception Index survey. Pakistan was ranked 126 on the scale of 175 countries, best ever in 20 years of Transparency International’s yearly assessment of CPI. By December 2013, Pakistan improved its ranking by 12 places in the Corruption Perceptions Index; ranked 127 as opposed to 139 on the scale of 1-175 in 2012. The country has witnessed this irregular decrease in corruption in the last five years from 139 in 2009, 143 in 2010, 134 in 2011 and 139 in 2012. Therefore, the ranking has only improved from 127 to 126 in the past one year and Pakistan also remains to be the 50th most corrupt country out of the 175 states according to Transparency International. Moreover, there is no significant method to measure corruption since it is illegal and secretive. This ranking is only based on expert views from bodies such as World Bank, African Development Bank etc which rank the countries on a scale of 0-100.
Projects in the pipeline
A number of projects and initiatives have been mentioned in the ad that are still work in progress, but will surely bring significant benefits to the country upon completion. For instance, the CASA -1000 project will help export 1000 megawatts of clean energy to Pakistan at a price of 9.35 cents including all the charges. This hydel energy agreement between Kyrgyz Republic, Tajikistan, Afghanistan and Pakistan was signed earlier this month in Istanbul. Moreover, last month Prime Minister Nawaz Sharif inaugurated a 60 kilometer long motorway project in Hazara. The road will be completed at a cost of $27 million and will reduce the drive time from Islamabad to Havelian by 30 minutes, additionally providing a road to the Havelian Dry Port project. Also, keeping in mind the financial capitals transport and water shortage issues, the government has allocated Rs. 27 billion for the Karachi Green Line Project and Karachi Greater Water Supply Scheme. Lastly, Rs. 8 billion have also been approved for the construction of 1000 schools and colleges in the earthquake affected areas of KPK and AJ&K.
While these grand projects and initiatives look great on paper, it remains to be seen whether these will reach completion, and that too within the given time frame. It also makes little sense to spend tax payer’s money to advertise projects that haven’t even been initiated yet, while skeptics feel that these are desperate face saving tactics by the government in response to the pressure being applied by PTI and questions being raised over their governance. Questions should also be raised over the total expenditure by the government for this advertisement which occupied 3/4th of the front page of Pakistan Today. While PML (N) claims that the TV advertisements against PTI are funded by the party, this print ad has an official stamp of the Government of Pakistan on it, implying that our tax money is possibly being used to advertise the achievements of the government.