Feb 8, 2011

Challenges ahead

We should find out solutions for our economic issues through political wisdom and not through politicising them

By Dr Abid Qaiyum Suleri

The year 2010 was extremely challenging both for the people as well as for the government of Pakistan. Despite all optimism, I don’t see any let up in these challenges in year 2011 either.

One does not require rocket science to predict state of Pakistan’s economy in 2011. Besides foreign exchange reserves, all other macro-economic indictors present a bleak picture. The negative effects of fiscal and fuel crises on common people are getting worse due to lack of effective social protection strategy, which in turn makes people first casualty of any macro-economic disciplinary measure.

Lack of political will to bring any meaningful power sector reform (despite the pressure from IMF) would remain the major cause of growing circular debt in power and fuel sectors. Revenue generation target seems unachievable and generated revenue would be barely sufficient to meet the costs of debt-servicing and defense expenditures, leaving very little for day-to-day administration, and public sector development programme (PSDP). It is estimated that total budgetary deficit for the financial year 2010-11 may touch 1.4 trillion rupees. International Financial Institutes (IFIs) are demanding a letter of comfort from the IMF before lending any money to Pakistan, which means either the government would have to take non popular decisions and please IMF or keep on borrowing loans from domestic resources thus crowding out private sector.

One third of Pakistan was hit by floods where reconstruction and rehabilitation is still a far cry. The rest of the country would be negatively affected by reduction in the PSDP, which is a direct result of increasingly increasing fiscal deficit. The cut in PSDP will not only decelerate the pace of growth and development but also adversely affect the delivery of basic services by the government to its citizens (of which more than 50 percent are food insecure). Unbridled spending on non developmental expenditures and lack of funds for essential day-to-day administrative measures coupled with non-functional democracy in the country would worsen the problem of governance and further weaken the rule of law.

The ongoing war on terrorism, drone attacks, series of ethnic conflicts in Karachi, and brutal blood-letting in the name of religion -- be it the assassination of Salman Taseer or attack on Chehlum processions in Lahore and Karachi -- is impacting the socio-political and socio-economic conditions negatively affecting not only the social fabric, livelihood opportunities, and business environment but potential foreign investment too. All of which will lead to increased unemployment, poverty and, in turn, increased militancy.

There seems to be no solution to break the poverty-militancy nexus in 2011 too. The situation is further deteriorating by one off incidences such as killing of Pakistani citizens by an American. US Embassy is undermining the extent to which its pressure for diplomatic immunity to Raymond Davis may backfire and result in increased public sympathies for extremist forces that are responsible for physical insecurity in Pakistan in the name of “revenge” from allied troops.

On top of everything, global food price hike is on the cards once again. According to the recently released World Food Price Index, prices of food commodities have reached at historic level since 2008. Although global food crisis should not have a direct bearing on food prices in Pakistan (as we are a food grain surplus country), yet lack of effective measures to stop food hoarding and poor governance may lead to food price inflation (and reduced supplies too) in Pakistan in near future. According to WFP-SDPI report, almost 70 percent population had poor to extremely poor “economic access” to food in 2009. This segment of society, majority of which happens to be in Balochistan, FATA, KP and South Punjab would turn further vulnerable in case of any governance led food crisis hit Pakistan in 2011.

There cannot be a magic wand to solve the above-mentioned problems. All of those problems require immediate attention, both short as well as long term strategies, and prompt implementation on those strategies by state with the support of contesting political forces at the domestic level and ever demanding allies at the international level.

One way of building trust is being more transparent and adopting a participatory decision making process. The current consultation between PPP and other political parties on economic issues and decisions like reduction in cabinet members are steps forward to bridge the trust gap and should be welcomed. However, this is not enough. We are passing through unusual times of our history and business as usual would not work anymore. Opposition of today is the government in waiting and should help the current government in bringing macro-economic stability so that when they come into power they don’t end up landing in an economic crisis that welcomed the PPP government in 2008.

This is the time when all political forces should agree on taking tough decisions for macro-economic stability. There is no “either” “or” approach and all sane suggestions that can recover economy should be given a serious consideration for their effective implementation. In order to achieve macro-economic stability we would have to document our economy, be it through RGST or through any other means.

We would have to undertake power sector reforms to resolve the issue of circular debt. In the absence of fiscal cushion, government cannot provide blanket subsidy on fuel any more and would have to pass on this price shock to consumers according to their buying capacity. However, all of the above mentioned measures would be extremely anti-poor and anti-people if adopted without a social protection strategy to minimise the side effects of these measures at the micro level. In order to be effective, such strategy should be collectively owned by diverse political forces in the country.

Finally, the governments (both federal and provincial) would have to adopt austerity measures through substantial reduction in their non-developmental expenditures. The current adhoc-ism would not provide any sustainable solution to problems facing the people as well as the government of Pakistan. This is about time we should find out solutions for our economic issues through political wisdom and not through politicising them. Year 2011 is going to be a tough year, but we can certainly turn 2012 a year of relief by setting our priorities right during the current year.

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