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PML-N’s financial wizardry

I am surprised to read the PML-N’s defence of the failed economic policies of George W Bush, advocating their implementation in Pakistan. Zubair Mohmmad in his article titled ‘Bushonomics and PML-N’ on December 19 makes a valiant attempt to defend his party chief’s comments on a prime time TV show. He argues that we should ignore the fact that Nawaz Sharif ‘advocated’ Bush style tax cuts for big business and wealthy elite because what Sharif said was not a policy statement but ‘just a general comment’.

Is the writer suggesting that his party chief is ‘shooting from the hip’ when it comes to economic policy? At a time when the country is facing record inflation, record unemployment and the worst ever energy crisis, the writer is suggesting that the chief of his party, a two time former prime minister, has no concrete solutions to present to the people of Pakistan?

What does that say about the financial ‘wizards’ of the PML-N? We have heard Nawaz Sharif praise his economic team numerous times – yes the team that made Pakistan an Asian Tiger! These wizards are proudly passing off George Bush’s tax cuts as part of their economic agenda. Zubair Mohammad reminds us that the PML-N reduced taxes for big business and wealthy individuals during its two tenures in the 1990s and these tax cuts led to an increase in tax revenues. And that’s how the financial wizards operate. They spin a good story, and repeat it often enough for some people to start believing it.

I would kindly request the PML-N team to read the State Bank of Pakistan’s Handbook of Statistics 2010 to get their facts straight. The tax cuts to big business and wealthy individuals introduced by the first Nawaz Sharif government in 1990 led to a decline in tax collection. Tax to GDP fell from 14.3 percent of GDP in FY90 (fiscal year ending June 1990) to 13.3 percent of GDP in FY93. The second time the Sharif government came to power – in 1997 – it repeated the same mistakes, leading to the same results. Again tax collection declined from 14.4 percent of GDP in FY96 to 13.3 percent in FY99.

So quite contrary to the story being spun around by the PML-N’s financial wizards, the facts clearly show that the party’s tax cuts for the rich led to a decline in tax collection in the 1990s. But it seems they have not learnt their lessons. Once again, Nawaz Sharif’s 3Es policy advocates George Bush style tax cuts to big banks, oil companies, multinationals and wealthy elite. If the Nawaz Sharif 10 percent formula is applied, it will cause a substantial loss of 1.6 percent of GDP in tax collection. That is two times more than the entire budget on providing basic health facilities to the 180 million who live in the country. The government of Pakistan is almost bankrupt and unable to provide basic health, education and clean drinking water and PML-N is advocating unprecedented tax cuts for the rich?

But the wizards don’t stop there. Through constant ‘self praise’, the PML-N has attempted to create a myth regarding its ‘revolutionary’ policies, which according to Nawaz Sharif led to Pakistan becoming an Asian Tiger in the 1990s. Zubair Mohmmad says that the PML-N government achieved the ‘highest’ growth rates for ‘any civilian government in our history’. Unfortunately, facts indicate otherwise.

SBP Handbook of Statistics 2010 shows that the Nawaz Sharif government’s economic performance was the worst amongst all civilian or military government in Pakistan’s. Average growth during Nawaz Sharifs two stints in power was only 4.1 percent, which is significantly lower than Ziaul Haq (5.9 percent), Musharraf (5.1 percent) and even lower than Benazir Bhutto’s two stints in power (five percent).

PMLN performance was not only bad but it also deteriorated during Nawaz Sharifs second stint in power during February 1997 to October 1999. The economy expanded at only 3.1 percent during this time, which is the lowest pace of growth for any government on record. To give you perspective it is exactly as bad as the performance of the current PPP led government, with average growth of 3.1 percent between FY09 to FY13. So while the PML-N rightly criticises the dismal performance of President Zardari’s five years in power, it compares its own equally woeful performance with the Asian Tigers?

Then the ‘wizards’ spin the story about the motorway and other megaprojects. We are also reminded that during the PML-N’s governments, there was no energy crisis, the government collected higher tax than it does today and there was no terrorism in Pakistan. But the central question that remains is: why, despite these mega projects and despite being better placed to run the economy, did the PML-N government manage to perform as poorly as the current government, with growth of only 3.1 percent?

The PML-N then comes out with a long list of excuses, the favourite being the 1998 nuclear tests. The party lays the entire blame of its poor performance on Pakistan going nuclear. However, a careful analysis of SBP data shows that growth actually picked up in FY99 – the year starting July 1998 or just two months after the nuclear tests. Growth picked up in FY99 to 4.2 percent compared to 1.7 percent in FY97 and 3.5 percent in FY98. Unfortunately for PML-N, hard verifiable official data shows that the Sharif government’s performance was dismal even in the years before the May 1998 nuclear tests.

Yet, despite this outstanding record, we are still fed concocted tales of PML-N having the “most experienced economics team on its side, which has delivered in the past and has the capacity to turn around our ailing economy”. With by far the worst performance of any civilian or military government, the ‘experience’ of the PML-N’s financial wizards is exactly the reason why Nawaz Sharif should replace them immediately.

The writer is an expert on economic policy. Tweets @SayemZA

Sayem Z. Ali, "PML-N’s financial wizardry," The News. 2013-01-04.