Eco­nomic Out­look for 2012

Enterprise - - Editor’s desk -

De­spite all its tall claims and am­bi­tious plans, Pak­istan has en­tered 2012 with not much in sight to look for­ward to on the eco­nomic hori­zon. Ef­forts to cor­rect the course in key ar­eas have not been much to write home about. Mon­u­men­tal in­sti­tu­tional re­sis­tance, bu­reau­cratic de­lays and ram­pant cor­rup­tion have served to weaken man­age­ment of public fi­nances. What has added to this dis­mal sit­u­a­tion is the out of date eco­nomic struc­ture which has failed in over­com­ing in­sti­tu­tional re­sis­tance and bu­reau­cratic de­lays and the over­all eco­nomic progress has fallen far short of achiev­ing the de­sired re­sults.

As an im­pov­er­ished and un­der­de­vel­oped coun­try, Pak­istan has suf­fered from decades of in­ter­nal po­lit­i­cal dis­putes and low lev­els of for­eign in­vest­ment. Be­tween 2001-07, how­ever, poverty lev­els de­creased by 10 per­cent, as the coun­try man­aged to steadily raise its de­vel­op­ment spend­ing. In the 2004-07 pe­riod, Pak­istan’s GDP growth was in the 5 to 8 per­cent range which spurred gains in the in­dus­trial and ser­vice sec­tors. How­ever, with the on­set of fi­nan­cial dis­ci­pline in the en­su­ing pe­riod, growth slowed down in 2008-09 and un­em­ploy­ment lev­els rose quite dras­ti­cally.

It is a mat­ter of top con­cern for the coun­try that in­fla­tion con­tin­ues to rise, climb­ing from 7.7 per­cent in 2007 to more than 13 per­cent in 2010. In ad­di­tion, the Pak­istani ru­pee has de­pre­ci­ated since 2007 as a re­sult of po­lit­i­cal and eco­nomic in­sta­bil­ity and to­day trades at Rs. 90 or more against the US dol­lar. The gov­ern­ment agreed to an In­ter­na­tional Mon­e­tary Fund Standby Ar­range­ment in Novem­ber 2008 in re­sponse to a bal­ance of pay­ments cri­sis. Dur­ing 2009-10 the cur­rent ac­count sit­u­a­tion strength­ened and for­eign ex­change re­serves sta­bi­lized, largely be­cause of lower oil prices and record re­mit­tances from over­seas Pak­ista­nis. Agri­cul­tural out­put was, how­ever, se­verely af­fected by the floods in 2010 and 2011 and con­trib­uted to a jump in in­fla­tion, with re­con­struc­tion costs fur­ther strain­ing the limited re­sources of the gov­ern­ment. Tex­tiles ac­count in a big way for Pak­istan’s ex­port earn­ings, but the coun­try’s fail­ure to ex­pand other vi­able ex­port al­ter­na­tives has made it vul­ner­a­ble to shifts in world de­mand. Pak­istan’s other long-term chal­lenges in­clude need for higher in­vest­ment in ed­u­ca­tion, health­care and electricity pro­duc­tion and re­duced de­pen­dence on for­eign aid.

The coun­try also con­tin­ues to be en­snared in a power and fuel cri­sis which sim­ply re­fuses to go away. This is neg­a­tively im­pact­ing prices of all es­sen­tial goods while the coun­try’s ex­port per­for­mance, which has been highly en­cour­ag­ing in the cur­rent fis­cal, may face a down­trend lead­ing to re­duced for­eign ex­change earn­ings. The coun­try is al­ready fac­ing a se­vere re­duc­tion in for­eign di­rect in­vest­ment which is direly needed for ac­cel­er­a­tion of eco­nomic ac­tiv­ity and re­vival of the em­ploy­ment sit­u­a­tion. The dis­mal eco­nomic out­look will tend to be fur­ther ag­gra­vated by the on­set of na­tional elec­tions which are likely to take place in 2012. This will pre­vent the gov­ern­ment from tak­ing dif­fi­cult eco­nomic de­ci­sions forc­ing it to con­tinue de­pend­ing on ar­ti­fi­cial bailouts to re­sus­ci­tate the econ­omy and meet tax short­falls through bor­row­ing and ar­bi­trary tax mea­sures

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