While the government is trying to find a way out of its political difficulties, the economy of the country is coming under increasing stress. According to a news item in the "Business Recorder" on 27th January, fiscal deficit for the current year could soar beyond 7 percent of GDP mainly due to a sharp increase in current expenditures on account of power subsidies expected to exceed Rs 350 billion as against the budgetary allocation of only Rs 50 billion. Other factors contributing to higher budgetary deficit would be expected slippage in revenue collection target and non-materialisation of budgeted external inflows. In order to finance this high level of deficit, the government would rely heavily on borrowing from the banking sector that would aggravate the problem of inflation, prompting the State Bank to tighten monetary policy which would adversely affect the growth rate of the economy. In a recent meeting of the National Assembly Standing Committee on Finance, the SBP had expressed its concern over the fiscal deficit during the current year so far, stating that it was not in line with the budgeted target. Also, short-term borrowings for fiscal deficit from the banking system were increasing the roll-over risk and interest rate risk for public debt. The position of the external sector was also less than satisfactory. Receipts of estimated $ 800 million on account of the Coalition Support Fund (CSF), $ 400 million Kerry-Lugar Bill (KLB) and $ 850 million PTCL privatisation proceeds during 2011-12 are now viewed as unrealistic. Exports were also not expected to maintain their upward trend. The slippage in external inflows coupled with widening deficit on trade account could have serious repercussions for foreign exchange reserves and the rupee rate. The Monetary and Fiscal Co-ordination Board in its recent meeting is reported to have shown its serious concern on the present trend in oil prices in the international market and the deterioration in current account balance during 2011-12. It may be noted that these negative developments, attributed to a reliable source in the government, are not mere guess work but are based on solid evidence available so far during the year. FY12 had, of course, started at a very positive note when the reform process was, more or less, still in place despite the suspension of the SBA with the IMF, the international community was quite co-operative due to our stance on the war on terror and the country was expected to have a sustainable current account balance. Since then both the internal and external situation has deteriorated to an extent that targets fixed in the beginning of the year now seem to be clearly out of reach. The latest data suggests that the actual fiscal deficit may exceed the target by about 3 percentage points, government borrowings from domestic sources may easily cross Rs 1.3 trillion and the current account deficit may at least be in the range of $ 4-5 billion. The consequences of such slippages are obvious. Inflationary pressures would continue to mount, foreign exchange reserves would decline, Pak rupee would lose its value in the international market, investors would avoid the country, capital flight may increase, and unemployment and poverty, already rampant, would worsen further. There are ways to address these challenges but nobody seems to be very much interested. In a situation like this, adjustment measures would have been put in place in other countries to take care of the deteriorating trends in the economy by now, but in Pakistan, all the political parties are engaged in an unending war of words to gain an edge in the coming elections likely to be held within a year or so. Problems of the common man are highlighted only to add to the confusion and thwart the feeble efforts of the government to undertake reforms. The government too is also not very serious because the real consequences of massive slippages now witnessed would only be apparent after a time lag. For instance, high fiscal deficit and loose monetary policy would show its impact in the form of high inflation, disequilibrium in the balance of payments etc. only after about 12 months when the present dispensation may not be at the helms of affairs, giving it an opportunity to blame the next government for policy failures. An apt example of such a mindset is continuous dilly-dallying of the government to reduce the huge energy sector deficit by complying with the recommendations of Nepra and reducing line losses and theft by strict action. Provinces were expected to generate surpluses after the latest NFC Award and mobilise higher internal resources after the 18th Amendment but they are not only reluctant to implement the necessary measures like taxes on agricultural incomes but also engaged in expenditure schemes likely to yield political dividends. Foreign investors are fleeing the country but nobody seems to take a proper notice and prepared to change the ground realities. We can only urge upon the major stakeholders of the system to rise to the occasion and accord due consideration to the economic imperatives of the country before people themselves take to the streets to find answers to their problems. Copyright Business Recorder, 2012
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