Who is minding the economy?

The ADB report raises concern on economy but there is no one to decide

“Directionless” is what the Asian Development Bank’s (ADB) latest report has declared the Pakistan economy. The Manila-based lending agency’s Asian Development Outlook has claimed that the “immediate recovery chances are almost nil amid a worsening balance of payments position.” The caretaker set up has taken a positive step by injecting Rs20 billion to ease the power crisis, but without a caretaker finance minister there is no one to tend to the economic problems coming up. In the first three weeks of the caretaker set up, three briefings on the economy have been given to the Caretaker Prime Minister Khoso, but the Planning Commission deputy chairman has been missing in all meetings, giving rise to what the ADB has said is its fear of “policy inaction by the caretakers.”

The basic economic report card of the previous government shows no serious attempt to address the basic direction of the economy. The Pakistan People’s Party (PPP) government continued the Musharraf-era model of consumption-based growth, instead of investment-driven growth. There has been a fall in fixed investments for the fourth year in a row to 10.9 per cent of the GDP. This is now the lowest since 1974, and ranks as the lowest among major Asian countries. The only thing growing is private consumption expenditure, which has expanded by 11.6 per cent in the last fiscal year, providing the basis of all the GDP growth that the PPP-led government has claimed. The ADB has projected 3.6 per cent growth for the current year and said that without energy sector reforms, Pakistan will not be able to achieve the 7 per cent growth required to accommodate the growing youth bulge looking for jobs. It has said that inflation is expected to edge up to 9.5 per cent and this year’s budget deficit will be at 7.5 per cent, excluding electricity arrears. On the ground, there has been no substantive improvement in either the country’s fiscal or energy imbalances.

The PPP-led government has proven to not have been sincere about addressing the sluggish growth prospects. Last year was the fifth consecutive year of low growth, falling investment, excessive fiscal deficits, high inflation and a deteriorating external position that weighed heavily on the economy. The low foreign reserves, which covered less than two months of imports in February this year, have sparked concern over sustainability of the exports sector. With the ADB predicting that “pressure on reserves shall continue, with an additional $1.7 billion due to the IMF before the end of fiscal year 2013 and $3.2 billion payments during the next fiscal year,” the Pakistan economy can be rightly said to be “sinking like a rock.” It is a somber diagnosis and with no functional government expected to be in place for at least a month, it is up to the caretakers to take short term remedial measures to restore the economy.