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?