By M. Sharif
Ground realities on the economic front have changed radically, domestically as well as globally during the past couple of years. The changes have had far more deepening effect on economic development strategy pursued in the country during past few years. It has directly affected all segments of the society except the affluent people and has given rise to a host of fiscal management problems currently faced by the government. The economic policies did not show enough resilience to rescue either the people or the economy. In order to address current economic issues, hard economic decisions mostly pro-poor people is necessary and focus on higher economic growth of around 8.0 per cent of the GDP per year will have to be planned and tight management policies to achieve this goal will also be necessary. All this is not going to be an easy task for any government.
Economic realities and priorities
Political uncertainty that has prevailed in the country for more than a year has affected economic growth and the macroeconomic indicators adversely. The budgetary targets fixed for current fiscal year seems to be a far fetched goal. Economic growth has already been reduced to around 6.0 per cent from 7.2 per cent, fiscal deficit so far has been estimated at Rs557 billion that is likely to be more than 6.0 per cent and is likely to increase by the end of the current fiscal year. Pak rupee has depreciated to around Rs65 per US dollar against a stable parity of around Rs60.0 per US dollar maintained for quite a long time and inflation has already hit 10.0 per cent mark against a target of 6.5 per cent. Other macroeconomic indicators such as public debt and the cost of servicing, exports, trade and current account deficit, revenue collection, forex reserves and non-development public expenditure do not make a happy reading.
Fiscal issues have emerged in the midst of a number of challenges faced by the economy primarily because of the structural imbalances that were let to stay during the past eight years. There are a number of fiscal and monetary issues that the government and the SBP are to address at the same time, a short, medium and long term goal oriented development strategy has to be implemented.
Challenges faced by the economy and people of Pakistan can be prioritised thus: energy crisis, high food and non-food inflation and structural imbalances in the economy. Allied problems faced by the power sector include high cost of electricity for commercial and domestic consumers, electricity theft, minimum three years time required to bridge the existing gap between demand and consumption, arriving at national consensus to build mega hydro-electric dams.
The core issue about addressing inflation is reducing food inflation that has taken quantum jump because of neglect of agriculture sectors not over the years but over the decades. There are three specific problems of the sector that need to be addressed judiciously and as early as possible.
One cost of inputs like fertilisers, electricity, seeds, pesticides and labour has gone up whereas increase in the price of farm commodities has moved at the snail pace to the disadvantage of farmers. It needs to be reduced. Wheat and sugar-cane are the two often quoted farm products that create a lot of problems for the consumers, farmers and government alike. Their low prices at the time of harvesting tend to be devastating for the growers and every year the problem comes up with full intensity to the disadvantage of growers and to the advantage of market players.
The yield of farm products per acre is perhaps the lowest in the region. It is intrinsically linked with modernising farming in the country, making farmers more knowledgeable and ensuring adequate irrigation water supply during rabi and khareef.
Water management is a real big challenge in view of shortage of water that is now a reality. The issue simply highlights the need to build water reservoirs at the earliest. Three, provision of adequate facilities and opportunities to farmers to contract loans from the banks and market their products at competitive prices. They should not be left to the market forces and players like investors and middle men because their approach is quite detrimental to the interests of farmers and agriculture sector.
Another issue is about improving structural imbalances that were relegated amidst the glare of consumption based high economic growth and macro-economic stability achieved after 2003. One has to appreciate efforts of the previous government for achieving twin objectives of high economic growth and macroeconomic stability. But, the moot point is about sustaining them, making economy self-reliant and enabling the people to benefit from economic growth. These objectives could not be achieved because of structural imbalances that have existed in the economy during past many years.
Some of the issues are: increasing revenue by collecting taxes within capacity of stakeholders belonging to different segments of society, increasing domestic savings from current rate of 17.0 per cent to around 22.0 per cent, levying tax on real estate, stocks and agriculture income, striking balance between income and public expenditure by reducing non-development expenditure. Going further, documenting economy, keeping current account surplus, contracting loans for development of such projects that would give impetus to economic growth and development and rationalising expenditure on different stakeholders in the state. It is an exercise that not only needs down to earth planning but it also needs a strong will power to bring an effective change. Can the coalition government demonstrate acumen and will power to opt for radical changes that might hurt the interest of many of their supporters? Irrespective of any such consideration, the essential point is that unless structural imbalances were removed, the economy would keep facing the crisis of sustaining itself time and again and government will have to look outward for financial assistance as is happening at present.
Immediate measures by the government
The government has taken a few immediate measures to bring certain degree of fiscal discipline in the economy. These measures include reduction of Rs70.0 billion in public sector development expenditure to reduce fiscal deficit, increase in the price of petroleum products to pass on increase in price of oil in international market to consumers that is likely to fuel inflation further and to improve supply side of agriculture products particularly wheat by taking certain administrative measures and importing around shortfall of around 1.5 million tons in production. It is also trying to raise forex reserves by around $3.0 billion to beef up the reserves that have depleted to $12.65 billion as on 24 April, 2008 and are under much pressure because of high trade and current account deficit. SBP has also intervened to stabilise a depreciating rupee.
Current account deficit has swelled to $10.3 billion during first nine months of current fiscal year against $6.41 billion during corresponding period of last fiscal year, showing an increase of 60.0 per cent. In view of limited time for which the government has been in power, there is not much that it could do but keeping in view the challenges that the economy faces it will have to work on strategies that make use of energy efficiently, use public expenditure judiciously in the best interest of public and should prioritise public expenditure for different state stakeholders according to the services they provide to the state and public.
Budget proposals for FY2008-09 to be announced by the government a few weeks later will clear the clouds about the strategy of economic developed that the government is to adopt. It has to be radically different from the past and hopefully it would be.
The issues faced by the economy are multi-faceted and are a result of partially inadequate economic policies and partially because of recent trends in global economy. The solution to these problems lies in adopting multi-pronged policies through transparent democratic governance that should not only address woes of stakeholders but should also hold them accountable. Only such a system will ensure public participation in economic development, enable equitable distribution of national wealth and create environment for benefits of economic growth to trickle down to lower strata of the society.
Courtesy: The News, 5/5/2008