Another bleak report
“Highly vulnerable” is how the IMF has categorised the Pakistani economy in a recent statement. It would have been a miracle if it were anything but. After all, the economy has seen not one but two devastating floods, the likes of which the country has never seen in its history; about a million people were displaced from their homes as a result. Couple this with the ongoing carnage emanating as a result of the war against terror, which has led to casualties whose conservative estimates would be more than 35,000. Add to this, strained relations with the US, especially in the aftermath of the Abbottabad operation and then unequivocal accusations of complicity with certain terror networks by key American officials. The US has been a principal donor to Pakistan, the resulting fiscal space being critical to many projections. Further aggravating the crises is the political instability the Gilani administration faces within the country.
And, if all this wasn’t bad enough, there is the general state of the world economy, with oil shocks affecting the strongest of global economies and an accompanying food crisis also hitting the world. A general recession, also, follows in the aftermath of the financial capital markets crisis in the US.
The Pakistani government had made a GDP growth projection of 3.5 percent. Though we are set to miss this already diminutive projection, it merits mention that the real goalpost is a growth of about 7 percent if we are to absorb the 2 million new entrants to the local labour market each year.
The solutions that the IMF prescribes are going to be difficult, politically, to pull across. There needs to be a rationalisation of tariffs, elimination of subsidies and buildup of the tax base. Then, the government must fight its impulse of bridging its considerable fiscal deficit by borrowing from the central bank. All of these are the stuff still political waters can facilitate, not the tumult we are seeing at the moment.
