A difficult, if not impossible, task

The Economic Survey 2010-11 claims that the "performance of the economy has been positive" and that the "government has shown continuing resolve to take difficult decisions and pursue the path of reforms," is extremely difficult if not impossible to substantiate given the Finance Minister''s reliance on the ability of the Federal Board of Revenue (FBR) to generate 272 billion rupees in June alone and the expected considerably lower disbursements of external assistance then pledged.
The typical response of the Finance Minister and those seated on the dais was "we have been assured by the relevant officials that targets would be met". In this context it is relevant to point out that the FBR was compelled to revise its tax collections downward three times this fiscal year and the International Monetary Fund''s 3.2 billion dollars are likely to remain stalled as the Council of Common Interest meeting held on Wednesday ended without any agreement on the levy of the Reformed General Sales Tax in the budget for 2011-12 to be presented today.
The implementation of the RGST is one of the critical IMF conditions that needs to be met prior to the reactivation of the stalled Stand-By Arrangement (SBA) programme. Additionally, the Fund''s repayment schedule would kick in from 2011-12 and the government would have to repay 800 million dollars. In effect, around 4 billion dollars would be the net sum of Pakistan''s liability of sorts with the Fund alone.
Private consumption expenditures rose by 27.27 percent this year according to the Survey which is attributable mainly to four factors: (i) high inflationary pressures that compromised the households ability to save for the future, (ii) rise in utility rates as part of IMF conditions under the SBA however during the past three years the government has simply not focused on reducing transmission/line losses and disconnecting those government ministries/departments/FATA who do not pay their bills.
The Finance Minister indicated that a sum of 120 billion rupees was arranged from banks for the intractable inter-circular debt. This amount at high interest of over 15 percent is payable with principal amount in three years, (iii) obtaining insurance guarantees from transporters of Afghan cargo may create a small dent but is highly unlikely to curb smuggling across the Afghan border. However, sale of undervalued goods is hurting the industry and causing loss of revenue, and (iv) tackling hoarding of food items with high lending rate is bound to fail once again.
The State Bank''s monetary policy that kept interest rates high in an effort to combat inflation proved unsuccessful as the government increased its dependence on borrowing from the State Bank and commercial banks thereby crowding out private sector credit and, more disturbingly, increasing its own indebtedness (fiscal deficit) - a highly inflationary policy. Government consumption rose by a whopping 25.65 percent this year which left little for public savings.
Thus between private and government consumption the domestic savings rate, already low in Pakistan, plummeted still further to 9.5 percent. Investment that could have been the engine of growth declined to 13.4 percent -(a decline catastrophic in economic theory though Dr Sheikh underplayed this negative indicator by maintaining that investment rose in absolute terms). He surely must be aware that the investment rate with a multiplier effect is of more critical relevance to economists.
Stocks rose during the year by 21.76 percent, in comparison to last year''s 16.6 percent, which indicated that the country was in the throes of a recession. High inflation and low output accounts for the stagflation that this country is witnessing at the moment. High unemployment due to low manufacturing growth (1.7 percent) attributed to power outages and low domestic demand account for a rise in stocks.
The question is can one lay the blame on the performance of these key macroeconomic indicators on the floods of last year? The floods caused massive destruction, estimated at 10 billion dollars, however the social safety nets focused on alleviating the woes of the flood victims were not identified in the Survey which states that "until restoration of normalcy in these areas, economic activity will be hampered by after effects of floods. " So are the poor poorer? The Survey has no answer to this question and points to the unavailability of the figures of the ongoing Household Income Expenditure Survey till next year.
What does the government intend to do to alleviate poverty? The Survey notes that the government has prioritised 17 pro-poor sectors for budgetary intervention through the Medium Term Expenditure Framework from 208-09 to 2010-11 in the PRSP-II. An amount of 482.6 million rupees was spent on these areas this year which was a drop in the ocean.
One would have to wait for the budget to learn how much would be spent in the forthcoming year but with foreign assistance stalled due to poor performance (including the failure to reform the tax system to render it more equitable as has been repeatedly stated by many a bilateral donor, improve governance by ending corruption, getting down to restructuring the poorly managed state owned entities, and spreading the perception amongst the people that their tax money will be used appropriately) and expenditures unlikely to focus on development of the necessary physical and social infrastructure next year there is not going to be too much left over for social safety net programme. Unfortunately instead of acknowledging the problems the Survey appears to be focused on deluding the people, by maintaining that the "the government has shown continuing resolve to take difficult decisions and pursue the path of reforms."