Ed­i­tor’s Desk

Enterprise - - Contents -

In the con­tin­u­ing cri­sis sit­u­a­tion that the gov­ern­ment finds it­self in, it is ob­vi­ous that not enough is be­ing done in terms of struc­tural re­forms to man­age the bud­get deficit and, as a re­sult, there is not much im­prove­ment on the in­fla­tion front. A mes­sage to this ef­fect was duly com­mu­ni­cated by State Bank Gov­er­nor, Yaseen An­war, in his me­dia brief­ing on Fe­bru­ary 11, 2012 when he an­nounced the mon­e­tary pol­icy for the Fe­bru­ary-march pe­riod. How­ever, while ex­press­ing his dis­ap­point­ment on the state of the econ­omy, the Gov­er­nor did not dwell on the en­ergy cri­sis which is the sin­gle big­gest rea­son be­hind the fed­eral fis­cal deficit as well as the coun­try’s slow rate of eco­nomic growth.

In his talk, the Gov­er­nor ex­plained the dif­fi­cul­ties be­ing faced by the econ­omy and prob­lems in mon­e­tary man­age­ment. As such, in a bid to con­tain ex­pected in­fla­tion in the sec­ond half of fis­cal year 2011-12, the State Bank in­tends to keep its key pol­icy rate un­changed at 12 per­cent for the next two months. The av­er­age in­fla­tion in 2011-12 (FY12) is ex­pected to range be­tween 11 and 12 per cent as in­fla­tion­ary pres­sures have not eased sig­nif­i­cantly and there are in­di­ca­tions of un­der­ly­ing in­fla­tion­ary trends, such as the num­ber of CPI items show­ing year-on-year in­fla­tion of more than 10 per cent, which is quite sig­nif­i­cant.

The State Bank of Pak­istan says it has been pro­vid­ing sub­stan­tial liq­uid­ity on an al­most per­ma­nent ba­sis, but this car­ries risks for ef­fec­tively an­chor­ing in­fla­tion ex­pec­ta­tions in the medium term. Mainly be­cause of debt re­pay­ments, Pak­istan’s for­eign ex­change re­serves fell to $16.69 bil­lion in the week end­ing Feb. 3, com­pared with a record $18.31 bil­lion in July. The cur­rent ac­count deficit widened to a pro­vi­sional deficit of $2.154 bil­lion in the first six months of the 2011/12 fis­cal year, com­pared with a sur­plus of $8 mil­lion in the same pe­riod last year.

Ac­cord­ing to an­a­lysts, the coun­try could face a pos­si­ble bal­ance of pay­ments cri­sis on the back of a grow­ing cur­rent ac­count deficit which is likely to worsen in the com­ing months as re­pay­ments on In­ter­na­tional Mon­e­tary Fund loans be­gin in Fe­bru­ary. In 2008, Pak­istan and the IMF agreed on a 3-year pack­age loan for $11 bil­lion but the pro­gramme was halted in 2010 be­cause of slow im­ple­men­ta­tion of fis­cal re­forms and only $8 bil­lion was dis­bursed. Islamabad had opted not to seek a new IMF pro­gramme or an ex­ten­sion af­ter the pro­gramme ex­pired in 2011 but the coun­try still has to re­pay about $1.1 bil­lion to the IMF be­fore June 30...

What is worse is that since gen­eral elec­tions are most likely to be held in 2012, the eco­nomic prospects for the coun­try hardly have an op­por­tu­nity to wit­ness any im­prove­ment. As time goes by, the gov­ern­ment will find it­self in­creas­ingly un­able to take the tough eco­nomic mea­sures needed to set things right. In its ea­ger­ness to garner mass public ap­pro­ba­tion, it will con­tinue to of­fer bailouts to meet deficits in var­i­ous sec­tors, while tax short­falls would be met through bor­row­ing and ar­bi­trary tax­a­tion mea­sures.

Once a new par­lia­ment is elected by the end of this year, fol­low­ing elec­tions, and the reins of power pass into the hands of a new gov­ern­ment, can it be hoped that the peo­ple will come out of their im­pov­er­ish­ment and daily hard­ships? Will Pak­istan now em­bark on a new jour­ney of progress?

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