The natural catastrophe of immense proportions has not only taken hundreds of human lives, destroyed over half a million houses, affected millions of inhabitants and damaged crops, livestock and other assets worth billions of rupees, but also unveiled the lack of capability and will of government agencies to counter the upheaval.
Concurrently, a big city mafia war is haunting and harassing millions residing in the financial hub of the country, while the northern side is wrecked by turbulent suicide bombings. At a time when Pakistan's flood coverage is on headlines in international media, the president of the state is busy reshaping terms with European leaders on the war on terror. On the other hand, the Prime Minister - the Chief Executive after passing of 18th amendment - was part of a staged rescue visit in one of the flood affected area. Similarly, the foreign minister in his non-leisure visit to India was found busy having photo sessions with females from the fashion fraternity there.
While it's true that government officials' actual presence is not required for rescue, relief and rehabilitation processes on natural calamities, but their acts are symbolic which pave the way for the whole nation to follow. Such acts of indifference were not the case at the time of the 2005 Earthquake. The unity needed to tackle a natural disaster of this scale is largely absent this time around.
These mirror the parliamentarians' attitude towards the much needed economic reforms. There is a clear detachment between technocrats and politicians on fiscal reforms and restructuring of loss making public sector entities. The Finance Minister, who is supposed to be a bridge between parliamentarians and professionals running economic affairs, seems to be hapless. The Prime Minister remains oblivious to current economic conditions, which is obvious from his applause for professionals at MoF for taking the economy out of woods in the start of his speech at a recent meeting.
With the fiscal deficit crossing six percent in FY10, and slippages in the ongoing year over one percent of GDP from budgeted numbers due to sheer lack of co-ordination between federation and federating units, better economic performance is far from sight as it defies basic economic logic. This is also visible from the monetary policy statement that explicitly said that fiscal and quasi fiscal discipline is imperative for economic recovery.
The fact that eight PSEs are eating Rs 250 billion from the government's kitty warrants immediate attention at this time of crisis. These PSEs need to be removed from the line ministries and be handed over to the all-powerful, independent board of directors with only one nominee director from the line ministry.
Restructuring or privatisation can only turn the balance sheets of white elephants from red to blue. But the actions of the current PPP led government are against such steps.
To add to the agony, in the aftermath of the flood, fiscal slippages ought to be more. Analysts estimate GDP growth at 0.3-0.4 percent lower than the budgeted target of 4 percent. Damage to crops and livestock might also add to inflation woes.
These slippages are in addition to the above-mentioned one percent of GDP, which was brought about due to a lack of co-ordination between federal and federating units. To keep the fiscal deficit at promised levels for the ongoing year, professionals at MoF are abuzz on slashing Rs180 billion (or 1percent of GDP) from development expenditure and subsidies. The amount might be equally divided between the centre and provinces.
Inter-disco tariff differential subsidies, which are already budgeted at lower than required levels, are likely to be axed further. Electricity prices which are 60 percent higher than 2008 levels might continue its sharp northward journey.
Nothing concrete seems to be happening about plugging the inefficiencies at power production and distribution levels. Every now and then, business pages dedicate headlines to the infamous energy circular debt.
The slash in the development budget will further hurt the economic growth and add to unemployment woes.
Unless a strong political will is developed and Dr. Shaikh manages to convince fellow parliamentarians on the necessity of reforms, high inflation with low growth and high unemployment is in the offing.
MONEY AGGREGATES:
Some money was reverted to the system but that could not help the demand and time liabilities of the banking system in turning green. The overall money supply is down by 0.69 percent or Rs40 billion for the week ending July 23.
The currency in circulation continued its random walk as it declined by Rs18 billion for the week under review, showing a plunge in the 23-day hike to Rs 39 billion. Deposits of the banking system continued their sorry state a fall of Rs21 billion last week, the decline reached Rs153 billion.
Net foreign assets showed a meagre fall of Rs10 billion while domestic assets reduced by Rs30 billion for the week ending Jul 23. A marginal fall in high-powered money creation by Rs16 billion is a good omen, but that is not likely to persist owing to grim fiscal conditions.
The private sector credit continued its downhill journey for the fourth consecutive week of this fiscal year. With a fall of Rs7 billion, the toll in red of private borrowers reached Rs49 billion for the year to date.
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KEY MONETARY AGGREGATES AS ON JULY 23
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Rs (mn)
23-Jul 16-Jul Change
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Currency in Circulation 38,728 57,175 (18,447)
Total Demand & Time Deposits (152,947) (131,811) (21,136)
Broad Money (M2) (114,169) (74,588) (39,581)
NFA (11,681) (2,042) (9,639)
NDA (102,487) (72,546) (29,941)
Net Government Borrowing 38,358 49,444 (11,086)
Borrowing for budgetary support 42,503 60,337 (17,834)
from SBP 49,193 64,993 (15,800)
from scheduled banks (6,690) (4,656) (2,034)
Commodity operation (5,126) (10,875) 5,749
Credit to non-govt sector (52,112) (45,312) (6,800)
to private sector (49,001) (41,807) (7,194)
to PSEs (3,175) (3,555) 380
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Source: SBP
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