Pakistan: Economic overview

The Frontier Post

The national economy has made a little recovery in the first six months of the current fiscal owing largely to inflation rate going down to about 6.5 per cent, marginal expansion of the large-scale manufacturing, capital market boom, greater scope of regional trade, improved dollar inflows from the West, sustained growth in remittances and agriculture and the silent contribution made by citizens languishing in the informal sector. And if foreign exchange reserves did not further deplete, this momentum can be maintained. Although there has been a slight rise in consumer price index in December, inflation may remain the same or see a minor rise. It will, however, be manageable and the government may be able to achieve some of its goals in the current account, cash inflow and micro and macroeconomic management. Likewise, while risks are there, the Gross Domestic Product growth rate is still expected at 4.5 per cent by the end of 2012-13 against 3.7 per cent at present. However, rupee shedding value against the US dollar will continue to pose a threat to State Bank of Pakistan’s reserves and the overall banking sector’s corporate lending outflows. A sustained growth will reduce pressure on SBP which is preparing to pay the next IMF debt installment in March 2013. To a large extent, the stability of currency would also be tied to the government’s skill to manage this external factor. The economic recovery may also get a temporary spur from the possibility of huge election spending by the government, political parties and candidates for national and provincial assemblies next year. The vulnerability of the economy may persist in the next year unless the next elected government wastes no time in improving economic management through economic and administrative reforms. Because whatever the extent of economic revival in Pakistan, it is because political and democratic continuity that lent the corporate sector an assurance against any form of disruption. This pace will continue if transformation of political power is made on the basis of the popular mandate although the business has reservations about the ability of the political leadership in the country. The business in Pakistan is most likely to keep on performing because it is optimistic about a smooth change of guards after the parliamentary elections most probably in March 2013. When experts talk of economic reforms they actually mean documentation of economy, fair and just tax collecting machinery, arresting the pace of escalating cost of living and doing away with subsidies that is still as high as Rs52 billion a year. They also mean a continued supply of fuel and energy for their industries and commercial concerns. Other long term challenges include expanding investment in education and healthcare and reducing dependence on foreign donors.