January 27, 2011

The scene of looming financial disaster painted by the finance minister in his briefing to the parliamentary leaders of various political parties seems even gloomier than the images presented in the past. Mr Hafeez Shaikh has warned the budget deficit could climb to eight per cent of GDP and inflation which has already taken a huge toll on the budgets of virtually everyone, could soar to 22 per cent. This of course is hardly comforting news and the political leaders have been asked to come up with suggestions to help rescue the country and prevent what could be a collapse. It can be assumed that the finance minister was attempting to create the political unity he has said is essential if there is to be any economic salvation. The discord on the RGST and the reversal of the raise in POL prices, as a result of agitation from government allies, have of course reduced revenue and perhaps disturbed the planning of Mr Shaikh and his team. The finance minister has also quite rightly pointed out the need for greater discipline by the government. But the team running the financial business of the government must also realise that the needs of people too need to be taken into consideration. It was this concern which led to the outcry over price hikes from key opposition parties. Ordinary people simply cannot be made to bear the entire brunt of economic ruin that they have played no part in creating, and this has to be kept in mind when devising policies.

There is also another aspect to the issue. While the finance minister obviously wishes to create cohesion, by emphasising just how grave the economic crisis is, his comments act also to further reduce confidence in the country. Such confidence is vital to bring in the investments that are so urgently needed and also to dissuade people from taking money away from the country. This can happen only if there is faith that matters can be brought under control and future prospects made good. Mr Shaikh needs also to consider this, as does the government as a whole. Indeed, economic stability is tied in to good governance. It will not simply appear on its own. Measures such as the RGST, favoured by Mr Shaikh, are also unrealistic in times as tough as these. Instead we need to see a tightening of official belts, an end to extravagance and control on corruption. Unless this happens the economic situation will continue to worsen, making the task of recovery all the harder. It is of course people who will suffer as a result of this.