Common man and state of economy

Misplaced priorities of the government

During the last three weeks the State Bank of Pakistan has issued its first quarterly report, the IMF has given its assessment of the state of the economy and the SBP has announced its monetary policy. While these reports have expressed satisfaction about the efforts being made to improve the economy, they have also given birth to questions of public importance.

The SBP has revised down its forecast for headline inflation to 10-11 percent for the year. This may turn out to be an underestimation as often happens with optimistic forecasts in this country. The figure is still significantly higher than the target of eight percent set by the government itself. The IMF has predicted that the inflation will rebound in the coming months.

Ishaq Dar has claimed the government has taken very painful austerity measures. There is a perception that the policy of growth being followed by the government puts most of the burden on the common man while allowing thousands of super-rich tax dodgers to go scot free. The IMF expects growth to reach around 3.1 per cent for the current fiscal year, still less than half the rate needed to supply jobs to Pakistan’s growing population. Getting loans at 10% would make cost of business unaffordable to many small enterprises which provide the largest number of jobs.

That the timing of the unfortunate about turn on Syria policy coincided with the negotiations of the $1.5b funds with Saudi Arabia and the statements about export of weapons like the shoulder fired anti-aircraft missile indicates the funds were not given without strings that could be harmful for the country in the long run. Except for remittances of nearly $15b, forex reserves continue to depend on one-off inflows and foreign loans. These may provide short-term stability, but share of private financial flows has to increase to achieve long-term stability. Net capital and financial flows, $428 million during July–January 2013-14, are still considerably lower than the external current account deficit of $2.05 billion during the same period. Ishaq Dar was highly critical of the 8% fiscal deficit gap under the previous government. He had promised to bring it down to 5%. He is still nowhere near the target as the SBP forecast for the full-year fiscal deficit is in the range of 6 and 7pc of GDP.

With the government continuing to flip flop on the use of force against the militant outfits, the insecurity in the country continues to discourage foreign investors. Similarly despite Nawaz Sharif’s claim that better management has improved the provision of power, 12 hour power cuts are back. This is another factor that puts off the investors. Private investors are also waiting for structural reforms in fiscal and energy sectors to be implemented. Without making progress in these areas, the dream of sustainable high growth is not likely to materialise.