The week in focus
Besides political pressure at home, the government has to face the IMF delegation expected to arrive this month.
Pressure is mounting on the government from the main opposition party which is seeking tangible action to tackle corruption in government departments, reduce the size of the cabinet, overcome energy shortages and undertake reforms to kick-start the national economy.
Although previous governments were also dogged by issues of governance and transparency, the government led by the Pakistan Peoples Party has been encountering an additional problem – acute energy shortages – for the past three years, which needs short- and long-term solutions. Energy is one of the main drivers of economy, without which the entire industrial sector will come to a grinding halt, leading to massive unemployment.
Reports say that the government and the Pakistan Muslim League-Nawaz (PML-N) have agreed to cut federal and provincial expenditures, restructure board of directors of loss-making state-run companies and constituted committees to come up with suggestions to meet key economic challenges.
The government is said to have agreed to abolish some ministerial posts in an apparent bid to appease the opposition and prevent it from going against it and to show the people that it is serious about dealing with the financial stress. However, a number of ministers are lobbying hard to protect their posts, putting the government in a dilemma.
Experts say that implementation of measures is the key as similar promises had also been made by the government in the past but yielded no concrete results. Is the government really serious this time around to reduce the ministries, if so it may infuriate its allies who are holding some portfolios? Or the other way around, the government will only keep talking about slashing expenditures and will not implement them to buy time and stay in place.
Difficult task
Research Head Invest and Finance Securities Khalid Iqbal Siddiqui said the government cannot do much in terms of cutting expenditures and the only area that can be targeted is the development budget. “Implementation of austerity measures is difficult and we can only hope for the best,” he said.
Development spending has already been reduced from the budgeted Rs280 billion to Rs140 billion and there are reports it may be further slashed.
Besides the political pressure at home, the government has to face the International Monetary Fund (IMF) whose delegation is expected to arrive by the end of January.
Siddiqui said the government can seek relaxation in debt payments from the IMF which may provide a temporary reprieve in difficult times.
However, he said the lender is not likely to agree on a further cut in the tax revenue target, which has already been brought down from Rs1,667 billion to Rs1,604 billion.
JS Global Capital analyst Mustafa Bilwani said the talks between the government and the PML-N have a political angle and only time will tell whether the government implements the reforms or not.
“Though economy has recovered, but not in a significant way. To improve the state of affairs, tax revenues need to be increased and expenditures, particularly on the ministries and security, be cut,” he said.
About IMF, Bilwani said the lender is expected to complete its fifth review of Pakistan’s economy in the next two months and the government will have to show how it will make up for the revenue loss from the withdrawal of a nine per cent increase in petroleum product prices.
Pakistan is yet to receive two installments of $3.4 billion from the IMF which has been withheld due to delay in undertaking tax and power reforms.
The writer is incharge Business desk for the Express tribune and can be contacted at ghazanfar.ali@tribune.com.pk
Published in The Express Tribune, January 24th, 2011.
Although previous governments were also dogged by issues of governance and transparency, the government led by the Pakistan Peoples Party has been encountering an additional problem – acute energy shortages – for the past three years, which needs short- and long-term solutions. Energy is one of the main drivers of economy, without which the entire industrial sector will come to a grinding halt, leading to massive unemployment.
Reports say that the government and the Pakistan Muslim League-Nawaz (PML-N) have agreed to cut federal and provincial expenditures, restructure board of directors of loss-making state-run companies and constituted committees to come up with suggestions to meet key economic challenges.
The government is said to have agreed to abolish some ministerial posts in an apparent bid to appease the opposition and prevent it from going against it and to show the people that it is serious about dealing with the financial stress. However, a number of ministers are lobbying hard to protect their posts, putting the government in a dilemma.
Experts say that implementation of measures is the key as similar promises had also been made by the government in the past but yielded no concrete results. Is the government really serious this time around to reduce the ministries, if so it may infuriate its allies who are holding some portfolios? Or the other way around, the government will only keep talking about slashing expenditures and will not implement them to buy time and stay in place.
Difficult task
Research Head Invest and Finance Securities Khalid Iqbal Siddiqui said the government cannot do much in terms of cutting expenditures and the only area that can be targeted is the development budget. “Implementation of austerity measures is difficult and we can only hope for the best,” he said.
Development spending has already been reduced from the budgeted Rs280 billion to Rs140 billion and there are reports it may be further slashed.
Besides the political pressure at home, the government has to face the International Monetary Fund (IMF) whose delegation is expected to arrive by the end of January.
Siddiqui said the government can seek relaxation in debt payments from the IMF which may provide a temporary reprieve in difficult times.
However, he said the lender is not likely to agree on a further cut in the tax revenue target, which has already been brought down from Rs1,667 billion to Rs1,604 billion.
JS Global Capital analyst Mustafa Bilwani said the talks between the government and the PML-N have a political angle and only time will tell whether the government implements the reforms or not.
“Though economy has recovered, but not in a significant way. To improve the state of affairs, tax revenues need to be increased and expenditures, particularly on the ministries and security, be cut,” he said.
About IMF, Bilwani said the lender is expected to complete its fifth review of Pakistan’s economy in the next two months and the government will have to show how it will make up for the revenue loss from the withdrawal of a nine per cent increase in petroleum product prices.
Pakistan is yet to receive two installments of $3.4 billion from the IMF which has been withheld due to delay in undertaking tax and power reforms.
The writer is incharge Business desk for the Express tribune and can be contacted at ghazanfar.ali@tribune.com.pk
Published in The Express Tribune, January 24th, 2011.