The Advisor to the Prime Minister on Finance, Shaukat Tarin, has revealed that the government expects one billion dollars within the month - half a billion dollars from China by the 4th or 5th of January and another half a billion dollars from the World Bank.
This inflow, after the release of the first tranche of the International Monetary Fund's (IMF) standby facility agreed last month is expected to further ease the pressure on the balance of payments position as well as the country's foreign exchange reserves. And, as part of the IMF conditionalities, the government of Pakistan is concurrently on a reform agenda, which includes no borrowing from the State Bank of Pakistan till the end of the current fiscal year, eliminating the inter-corporate debt which would ease the pressure on the supply of electricity somewhat and other monetary policy steps designed to reduce the impact of inflationary pressures and oil the wheels of production at the same time.
Revenue generation has been handsomely assisted by the government charging a hefty petroleum development levy as well as general sales tax on oil and products that had allowed it to generate billions of rupees by not passing on the over 70 percent decline in the international price of oil to domestic consumers. This, in turn, would bring the budget deficit to sustainable levels which would translate into improved macroeconomic indicators in the coming months. One would hope that the government would focus on reducing non-development expenditure as opposed to development expenditure to further reduce the budget deficit.
Be that as it may, the economy is likely to be out of the woods within the next year and half and with the IMF monitoring the process it is likely that macroeconomic indicators will further improve. Therefore, it is imperative at this stage for the Special Advisor on Finance to turn his attention to microeconomic aspects of the economy that require his immediate attention.
First and foremost, Tarin must focus on promoting private sector activity both in the industrial as well as the agriculture sectors. The government, civilian and military, needs to accept an obvious fact: that private sector can engage in the same activity more profitably and therefore for the good of the economy they need to get out of the business of production. In this context, it is necessary to be patient with privatisation, which maybe deferred till such time as there is a vibrant global financial market, or transfer management to the private sector in order to improve productivity.
Tarin needs to consult with all the stakeholders and formulate a policy plan that would remove the impediments to private sector activity thereby not only providing greater employment opportunities but also the capacity to minimise the impact of halving of output that is forecast for Pakistan in the coming year. To raise productivity it is critical to provide energy and to achieve this objective the government has to act on a war footing. As matters stand today, the India-Pakistan-Iran gas pipeline has, once again, been held hostage to a failure to agree on pricing while accessing energy from Central Asia remains dicey given that Afghanistan continues to be in the throes of a civil war.
In this context it is necessary for Tarin to focus on reducing the burgeoning inter-corporate debt. This, in itself, would ease some of the short-term supply issues. Medium and long term plans shall also to be shared with the people of this country so that they are aware that action in this regard is imminent.
Social safety nets as provided by the Benazir Income Support Programme are not likely to be adequate given the high rate of inflation. At the same time, 2008 was marked by burning of schools in Taliban areas coupled with failure to immunise children against polio and other diseases.
It is, therefore, imperative for Tarin to provide large chunks of public money for education and health - with the objective of providing education and health care to all within the next ten to fifteen years. This would not only resolve many health related issues associated with illiteracy but also help ease the significant law and order problems in the area. In addition, micro finance must be supported as much as possible in an effort to ensure that the unemployed, have recourse to assistance that can be translated into higher productivity.
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