The IMF’s disappointment with Pakistan’s fiscal indicators raises some important questions that concern both growth and employment. One, fiscal deficit projected at 6.5 per cent GDP, though less than the eight per cent for Middle East, North Africa, Afghanistan, Pakistan (MENAP) grouping, indicates unsustainable subsidies and leakages, hence the downward growth target revision to 2.6 per cent. Two, reduced fiscal space has ruled out expansionary fiscal policy, making the 4.2 per cent growth target impossible. Three, a static market is pressuring employment to the downside which, coupled with inadequate investment in human capital, threatens triggering extremely high jobless rates. Four, inflation is still expected to overshoot the 12 per cent target, and if recent monetary relaxation fails to stimulate investment and employment, loose money will induce further cost push inflation.
Of course, the Fund swung no surprises by urging improvement in the tax-to-GDP ratio, among the lowest in the world. But the fact that our business environment is now ranked alongside Libya’s speaks volumes about the difficulty of approaching the Pakistani market. Already the security situation, war-on-terror drain, flood response, falling exports and international commodity price crash, and slowing demand in traditional trade markets have compromised crucial earnings. Discouraging investment amid high inflation and mounting unemployment amounts to hastening total collapse, something the finance ministry is no doubt well aware of.
In the MENA region, too, disorder prevails as the spring-euphoria gives way to yet more chronic economic problems. Investors fled at the first signs of agitation, and dwindling exports and tourism earnings, along with raised political tension, have diverted immediate attention from essential reforms. The whole region urgently needs to get its act together, or risk descending into unending chaos as the wider world reconfigures priorities in keeping with new, post-recession financial realities. In addition to noting their deficiencies, the Fund would do well to propose a program of integration, where increased mutual cooperation can enable affected countries to use this moment has a jumping pad into a more coordinated era. Failing a unified stance, it is unlikely that any country in this grouping will emerge from these problems unscarred.