Has the time come for the government to stun the nation by making an admission that it has expended all its energies towards “effecting a change in the political system” and that its focus on political issues is badly undermining its ability to deal with a rapidly worsening economy?
Will it also admit that it has not taken with much seriousness the recent international rating agencies’ warnings that if a deterioration in Pakistan’s credit fundamentals becomes irreversible in coming weeks and months, negative actions will follow as many of the credit stresses which led to the downgrading of country’s sovereign credit ratings to B2 from B1 in May 2008 are still there?
That the central bank increased the key discount rates on two different occasions in less than six months, inflation is still alarmingly high as consumer price inflation already hit a 30-year high of 21.5% while food price inflation soared to 32% in June.
It has reached menacing proportions this month even when the government has not fully withdrawn subsidies on food and fuel with a view to reducing the growing fiscal deficit. It is widely believed that the government has contributed directly in the rise of inflation through its recourse to heavy borrowings from the State Bank of Pakistan despite firm commitments to the contrary.
A growing power deficit that has now widened to as much as 4,500mw notwithstanding, the circular debt that engulfs the entire oil and power sectors is a strong sign of an unmanageable energy crisis that is going to occur very soon in the shape of a massive decline in fuel supplies for the generation of electricity.
Again, it is the government which is said to have failed to tackle the circular debt in excess of Rs 200 billion, threatening not only the shutdown of IPPs but also badly affecting the ability of OMCs to make timely import of POL deficit products, particularly diesel and furnace oil possible.
Barring a two-day recovery following Pervez Musharraf’s resignation on August 18, stocks have been losing their gloss for six consecutive sessions. The KSE-100 index has lost as much as 43 percent since April 21 this year, the day it hit a record high.
More and more foreign investors are shifting their funds to other destinations mainly because of political uncertainty while the incidence of flight of capital is also attributable to a significant increase in margin calls due to a global economic slowdown. Is the present stock market slump not a fatal haemorrhage?
That the serious economic fault lines were very much there even much before the present government came into office, the government has hardly done anything effective and meaningful to lessen those pressures that have been exacerbating the fiscal imbalances.
The absence of any meaningful policy-making has also caused a negative impact on foreign investment inflows, thereby seriously diminishing the prospects of improvement in the economic indicators even in the long term.
Although the US has announced a plan to provide US $115.5m in food aid to Pakistan while UK intends to double its aid to US $950m during the next three years, the present situation has given birth to serious doubts about the government’s ability to successfully meet its objectives that it spelled out in the FY09 budget. Among other things, it remains to be seen whether or not the government will be meeting its fiscal deficit target.
The government’s inability to promptly tackle the recent goods transporters protest is also a case in point. Not only has it led to the crowding of a large number of containers of imported items, the shipments of export cargoes worth millions of dollars are facing inordinate delays on account of the strike that ended very late and that too only partially.
The laundry list of economic woes is painfully very long. Although the foreign minister has made a sudden dash to Saudi Arabia to hold talks on oil facility against deferred payment, this seemingly priority plan seems to have run into snags on account of an inordinate delay owing to the government’s lack of focus on this key economic issue.
Last, but not the least, the lack of focus on increasing the agri surplus to ease pressure on BoP and current account deficit also betrays the government’s lack of interest in a sector which contributes around 25 percent to the country’s GDP.
Wednesday was not much different from the past many days and weeks. The stocks further plunged with KSE-100 index nose-diving to below 9,000 points before ending at 9,020.50 points. The only consolation came on account of appreciation in the rupee against the US dollar. A badly battered and beleaguered rupee did make a slight recovery, the erosion of its value against the greenback over the past many weeks and months has been disappointing nevertheless.
Source: Business recorder, 28/8/2008