Gloomy forecast of Pakistan Economy
 

The Asian Development Bank (ADB) Outlook 2010, released on 13th April, is replete with gloomy forecasts about the economy of Pakistan. Backed by a slight recovery in manufacturing, the growth rate, according to its estimates, was expected to be only 3.0 percent during 2010 and may improve to 4.0 percent next year. In comparison, China and India would grow by 9.6 percent and 8.2 percent, respectively. Pakistan was beset with three interconnected development challenges.

The first was its weak fiscal situation, marked by under-performance in government revenues over the years. The second was low growth and the challenge to revive it so as to create jobs and reduce poverty. And the third was to improve the competitiveness of the economy so as to expand exports, sustain growth and avoid balance of payments problems in the future.

Higher oil and electricity prices would compensate lower direct tax collections to some extent, but higher than budgeted defence spending has made it impossible to achieve the fiscal deficit target of 4.9 percent of GDP for 2010. The government was now targeting the deficit at 5.1 percent, but this, too, could be overshot in case of further shortfalls in tax and non-tax revenues.

PSDP spending would need to be reduced to accommodate shortfalls in revenues and higher defence spending. The Outlook suggests that rapid fiscal improvements were needed to underpin recovery, sustain the public sector development programme and prevent crowding out of the private sector.

The ADB was certain that the security environment and the ongoing power crisis were both burdening the fiscal situation and obstructing the revival of growth. Therefore, Pakistan must swiftly end power cuts and ease violence to secure economic growth and counter fiscal imbalances. The country was struggling, almost desperately, to keep its economy afloat with the help of $11.3 billion loan from the IMF.

Economic prospects over the next 2 years were predicated on successful completion of the current IMF programme; a gradual improvement in the security situation; a phased reduction in electricity shortages as tariffs are rationalised and new power plants are commissioned; sustained implementation of fiscal reforms; a gradual economic recovery in the main trading partners; and political stability.

We feel that the analysis of the economy, as contained in the ADB Outlook, is quite comprehensive, as well as blunt, this time. It has highlighted weaknesses of the economy, identified the challenges and suggested remedies in various areas to improve the situation. There is absolutely no doubt that the authorities of the country had mismanaged the economy for a number of years and did not care about structural imbalances, like a dismal saving rate and high fiscal and foreign sector deficits, but such perennial problems have now been further compounded by notorious energy shortages, the deteriorating security situation, higher defence spending, corruption in society and political instability.

The threat of chaos and disruption in normal economic activities is growing by the day because a growth rate of around 3 percent cannot generate enough jobs and double-digit inflation is rapidly adding to the frustration and miseries of the common man. Unfortunately, there hardly seems to be any light at the end of the tunnel. According to the ADB, economic revival would depend on successful completion of the current IMF programme by the end of 2010, but such a scenario is very optimistic.

As is well-known, the country has already missed certain important performance criteria and the continuation of the present Stand-By Arrangement would depend largely on the grant of waivers by the IMF, which may reluctantly agree to such a proposition due to the pressure of some developed countries, particularly the US. Even otherwise, countries don't get out of a difficult economic situation by merely literally adhering to a programme, but by following its spirit and improving the base on which the economy could be restructured for a better future. This, of course, is a tough call, especially at the present juncture.

Although, the ADB has not delved deep into the non-economic issues for obvious reasons, it is not difficult to see that the economic situation of the country has been very badly affected by adverse factors, such as the deteriorating security environment, lawlessness and loss of writ of the government. The resolution of so many issues, originating from a variety of sources, is extremely difficult but, somehow, a beginning needs to be made to inspire the confidence of the people in the sincerity of the government's efforts.

For instance, measures could be initiated immediately to overcome the energy shortages by devoting all kinds of available resources and the top-most functionaries, including the President and the Prime Minister, could demonstrate their seriousness in the fiscal balance of the country by avoiding ostentatious living, paying their due taxes, sharing load-shedding with the ordinary people and reducing the size of the present cabinet, in line with the 18th Amendment of the Constitution. We are afraid that if the men at the helm don't realise the gravity of the situation and manage to rise to the occasion, Pakistan may be destined to face a very bleak future.