Dr Akmal Hussain on Saturday said the government faces an economic crisis which, if allowed to persist, could place severe stresses on the society and state.
Addressing a seminar at the South Asia Free Media Association (SAFMA), he said the government should stand and deliver on the economic front not only to secure its own political future, but the future of the people.
A detailed discussion was held on the budget 2013-14 by SAFMA and Dr Hussain was invited to discuss it in the current scenario.
Dr Hussain is an economist, author and social activist. He is currently teaching economics at the Forman Christian College. He is also the South Asia Centre for Policy Studies (SACEPS) governing board’s member and senior fellow at the Pakistan Institute of Development Economics (PIDE).
Dr Hussain said that the most important characteristic of the current crisis was that persistent recession was combined with acute pressure on the balance of payments front. This is different from the rest of balance of payment crises in the country, which always occurred at the pinnacle of high growth periods, he added.
A balance of payment crisis with recession was mainly because the public sector outlays of the previous government (65 percent) have been on import intensive, but non-productive expenditure.
The severity of the balance of payments crisis can be judged by the fact that the about $7 billion dollars reserves of the State Bank of Pakistan’s can provide cover for only six weeks of imports whereas, the safe level is for 12 weeks of imports. This means that Pakistan faces dangerous exchange rate fragility. Any exogenous event that undermines confidence could trigger a disastrous exchange-rate collapse that could fuel hyper inflation, Dr Hussain said.
He also said the second and related feature of the current crisis was that the recession was occurring simultaneously with an unsustainable fiscal deficit (7 percent of GDP). A high fiscal deficit in itself was not an alarming cause. If it is being generated by productive investment by the government in infrastructure, for example; the resultant income stream could, in time, bring the budget deficit down through the high revenues that accompany high GDP growth.
But, if the fiscal deficit has been generated by non-productive expenditure with no stimulation to GDP growth as in the present case, then such a fiscal deficit takes the country to the verge of bankruptcy.
