Friday, June 3, 2011

Pakistan: Bad news, again

As expected, Pakistan’s key economic indicators remain depressing. According to the Economic Survey of Pakistan 2010-11, the country’s real Gross Domestic Product growth is estimated at a slim 2.4 percent against the targeted 4.5 percent. Inflation remains in double digits, hovering at around 14.1 percent in the first 10 months of the current fiscal year, compared to 11.5 percent during the same period a year ago. Moreover, the fiscal deficit has been estimated at 5.9 percent for the year, while public debt has shown a sharp increase of 13.1 percent in the first nine months of the current fiscal year.

One can continue citing figures, which overwhelmingly paint a grim picture of Pakistan’s economy. But were we expecting any different? In a country shaken to its core by terrorism, continued political instability, inconsistent policies, and an unprecedented energy crisis, the economy often remains the first causality. Last year’s devastating floods only added to the country’s woes. According to government estimates, floods wiped out a staggering two percent from economic growth. The surging oil and food prices also proved mighty blows on the fragile economy, already reeling from internal challenges. All these factors contributed towards making life miserable for the common man. The unemployment rate grew by 5.6 percent, while instances of poverty increased.

However, the blame for dismal economic figures cannot be placed on these internal and external factors alone. The impact of these challenges compounded because the government proved slow to act and kept dragging its feet on crucial reforms - this includes its failure to expand the tax base to that of restructuring public sector enterprises, which alone need an injection of more than 250 billion rupees in subsidies just to remain afloat. The government’s debt management strategy, fiscal austerity, and rationalising the subsidy regime also left a lot to be desired. The only saving grace for this outgoing fiscal year remains the robust external sector thanks to a record surge in remittances by overseas Pakistanis and high exports, which are expected to cross $24 billion by the end of the year. Sadly, no credit can be given for this to the government. Let’s hope that in the 2011-12 fiscal year, the finance minister and his team manage to take those tough and difficult decisions, which are vital to pull the country out of its low growth and high inflation cycle. For this, mobilising internal resources, scrapping subsidies, and taking measures against vested interests remain vital. Whether this team will be able to do so remains a multi-million dollar question.

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