Prime Minister Yousuf Raza Gilani, while addressing a huge gathering at Multan, vowed to bring foreign investment and prosperity to the country, which should give the nation hope that the economy will at long last start moving in the right direction.
Citing terrorism and sectarianism as major impediments to attracting foreign investment, he pledged to restore the 1973 Constitution, restore judiciary and other institutions and ensure press freedom. He has rightly claimed that the PPP is a symbol of federalism. He also said that his government had inherited problems like price hike, etc, which the PPP will address. These are brave words indeed, becoming of a prime minister determined to set things right, and bring the country out of the economic doldrums.
However, some leading economists do not entertain such hopes. As the present is a continuum of the past, we cannot avoid analysing the pluses and minuses of economic policies of the past nine years, in order to put things in proper perspective. As a leading analyst has said, keeping the structure of the economy unchanged was the biggest disappointment, as a result of which the problems that had plagued the economy in October 1999 continue to bedevil it, despite some occasional attempts to bring about structural changes.
Secondly, conspicuous consumption by some, the mushrooming of palatial "white houses" and flaunting of expensive cars was seen as a proof that some people had indeed grown very rich, and though the "trickle-down" effect was also there, it did not reflect true health of the economy. The new government will, therefore, have to tackle multiple economic crises in the months and years ahead, foremost among them will be the high rate of inflation as well the twin deficits of fiscal and trade accounts.
As we have often pointed out in this space, the credibility of economic data during the preceding regime was at times called into question by some economists, and the charge of figure-fudging was often levelled against the economic managers, though how far the accusations were correct was not known. This was done to portray the health of economy that was at variance with the ground reality. A leading economist has categorised these problems at three levels: near-term crises relating to the twin deficits of in fiscal and trade accounts.
Secondly, there are the medium-term crises relating to the chronically low domestic savings rates, an undiversified source of foreign direct investment, which largely consists of money sent by expatriates, and a perennially narrow income tax base. And finally, there are the long-term crises connected to mounting income inequalities, a high poverty rate, and a rate of population growth that is counted among the highest in the world. According to a prediction made by a leading analyst, the budgetary deficit is likely to touch higher than six percent during the current fiscal year - 50 percent higher than the limit deemed safe by the lending institutions.
It can provide a credible measure of the state of the economy that during the first nine months of the current fiscal, the trade deficit was expected to mount to $19 billion, up by 44 percent over the corresponding period of last year. The hefty deficit has been largely driven by mounting imports of consumer goods, none of which can contribute towards increasing the productive capacity of the economy. Even more worrisome is the State Bank's prediction that inflation might reach nine percent during the fiscal year ending in June, which will be almost 33 percent higher than the target of 6.5 percent.
A stable law and order situation is the foremost prerequisite for attracting foreign investment. The government should therefore start putting greater emphasis on the carrot than the stick, which anyway has not so far achieved significant success. The Prime Minister's remarks that he is determined to root out terrorism and sectarianism should send a clear message to the forces of divisiveness to work for sectarian harmony, which will not only help attract greater foreign investment, but will also revitalise our economy. We wish Gilani Godspeed.