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Pakistan outlook 2013 – I

Internal factors are surely influenced by combination of political and domestic challenges that have led to a low GDP growth now hovering around 3 percent, with bank lending to private sector drying up. Inflation though a notch or two below 8 percent after many years of a double-digit phenomenon looks threatening.

Fiscal deficit is at a high level with another amount of Rs 380 billion circular debt already parked in the backyard, suggesting an upward revision. Debt burden is huge, comfortably hovering well above 60 percent. Tax-to-GDP ratio of around 9 percent is surly at an alarmingly low level. National savings ratio is on constant decline. FDI) (FDI) is woefully disappointing.

Energy seems to be mother of all the ills, but as long as we consume 60-65 percent of the available energy blaming energy shortfall is an effort to divert attention. It’s the funding crisis that is the hindering factor and not its shortfall. Despite circular debt settlement of Rs 520 billion by the government another amount of Rs 380 billion has piled up due to subsidy and line losses. For maximum energy utilisation, the government requires an added annual funding of USD 4 to 5 billion, which may not be an easy task unless there is an increase in revenue collection accordingly.

We always take pride that the Pakistan is blessed with rich land, labor, minerals and all four seasons, but none of the leaders (political or military) were able to capitalise and transform the country into an economic model. Our leaders – past and present – have been quick to pick the best or the juicy part of the economic gains, but they always avoid discussing the worst that may be one of the major causes behind our present economic woes.

We have to address the fault lines that are responsible for an economic decline from a broader perspective. We frequently talk of policymaking and its implementation, but we do not apply them in letter and in spirit that encourages corrupt practices. We always talk of availability of human capital, which by definition means ability and skills of individuals acquired through investment and training that could potentially enhance earnings. Looking at our brief history, average spending on education has been around 1 percent to 2 percent of the GDP, of which almost half of the allocated funds go into another pocket. Statistics tell us that Pakistan’s population between 20 to 35 years is 55 million, which means that our youngsters do not meet the required qualification standards due to a lack of required funding in education.

It is imperative for our economic mangers to understand the need and importance of Capital, technology and labor that are required to determine growth. It seems that we are happy with the easiest option available to us, which is no more a magic solution. Human development and transformation from centralised system to market based economy are some of the tools that can fine-tune the economy.

We have became too dependent on foreign money without realising the misery it can cause to the present and future generations. It seems that no one is concerned about the consequences or economic repercussions. Since we are a deficit economy, we have unnecessarily wasted billions of US dollars by investing in luxury consumer items such as automobiles and electronics that have created a demand for higher fuel and energy consumption. Instead money should have been spent on improving country’s infrastructure by building roads, modernising transportation network, improving warehouses facilities, agriculture and fish farming, mining, etc, that may have created more job opportunities and increased exports.

High inflation is caused by quite a few factors. Excessive government borrowings that could hit Rs 1 trillion mark by this fiscal year end. Alarmingly high level of currency in circulation that has touched an all-time high of Rs 1.928 trillion is another inflation factor threatening to hit Rs 2 trillion mark during this calendar year. Rupee depreciation of 8 percent added to inflationary pressure. Hike in electricity and gas tariff causes inflation. Constant rise of food support price is another big cause of inflation. However, it is encouraging that despite all odds, inflation is down to 7.93 percent.

Two more areas that require definite policy changes are regulatory bodies and tax collection strategy. In order to bring tighter control over mismanagement and irregularities, regulatory bodies are required to take corrective measures and bring changes in their policy stance to exercise better control on market-related issues.

Similarly, stringent tax reforms are required to document economy and remove flaws without which fiscal burden will never be lessened. Weak taxation system is the real monster that has ruined the economy. Fiscal deficit target of 4.7 percent looks an unrealistic odd number, as SBP projection of 6.5 appears quite plausible. Attaining tax revenue target in monetary terms may not be a difficult task; it is the percentage to GDP, which needs to climb substantially. Fiscal year tax target will once again be met with ease since Coalition Support Fund of USD 1.5 billion is a receivable item and that will increase revenue by 146 billion. But what does the country achieve by attaining FY13 target as government borrowing from Central Bank is likely to touch Rs 1 trillion mark by the end of FY-13.

Asad Rizvi, "Pakistan outlook 2013 – I," Business recorder. 2013-01-03.