Curtain-raiser: Endgame for the economy?

Published: April 29, 2011
Email
Leading advocacy group set to present ‘minimum national economic agenda’ for consideration before key politicians.

Leading advocacy group set to present ‘minimum national economic agenda’ for consideration before key politicians.

ISLAMABAD: 

As Pakistan hurtles towards an economic disaster, a leading advocacy group will today step up to the plate in what many see as a high stakes gambit to try and break the political gridlock that has tied the country’s economy down. Today the Pakistan Business Council (PBC) presents what it calls a “minimum national economic agenda” before a gathering of political leaders from the five major parties.

“The agenda covers five broad areas: macroeconomic stability, energy, education, regional trade and social protection” said Asad Umar, President of the PBC, while talking to The Express Tribune. “We believe there is a dire and urgent need to take some tough decisions on economic reform so that the aspirations of the citizens of Pakistan and all key stakeholders can be met.”

The sentiment is nice, but the realities are not.

According to a recent analysis of Pakistan’s political and economic predicament submitted to the White House, the country’s economic agenda has been stuck in “political gridlock.” And on April 7, the International Monetary Fund (IMF), the country’s leading creditor, warned in a strongly worded note that Pakistan’s reform programme, after some progress in 2008 and 2009, has been “retarded or reversed in 2010 and 2011.”

With growth stalling, power shortages growing and the finance team of the government in apparent paralysis, Pakistan’s economic management appears adrift. The situation is becoming increasingly dangerous as storm clouds once again gather around the global economy, with a sovereign credit crisis lurking in Europe and the United States, and oil prices again on the march.

But at the heart of Pakistan’s economic difficulties is the growing fiscal deficit.

“The fiscal situation is out of control,” says Dr Hafeez Pasha, Chairman of the Revenue Advisory Council (RAC), speaking about Pakistan, “inflation is persistent, and if oil prices continue rising then all bets are off.”

The government has given its creditors a commitment that it will keep the fiscal deficit at 5.5 per cent of GDP, but few are buying this number. In its programme note on Pakistan, the IMF speaks of “[i]mportant delays in tax and expenditure reform,” and goes on to say that earlier attempts to control spending were “initially successful, but since June 2009, the authorities have exceeded the budget deficit targets under the program, among others, due to large additional subsidies for the electricity sector.” There is little mercy in these words; the IMF is normally so diplomatic in its pronouncements that it takes special training to decode its statements.

But raising revenues and cutting expenditures is easier said than done. Finance Minister Hafeez Shaikh has struggled to advance fiscal reform, although his efforts are perceived by many to be puny and conflicted.

At the heart of Pakistan’s tax reform is the move to introduce a Value Added Tax. And at the heart of expenditure control is cutting electricity subsidies and stemming losses at the public sector enterprises.

The efforts have been vilified in the national conversation and ricocheted off the walls of political indifference like a pinball. The decisions required to bridge the fiscal deficit have proved too difficult for a government that gives the appearance of fighting for its survival on a day to day basis.

“We believe the tough decisions needed today cannot be taken by any single political party,” says Asad Umar, who is mindful of the political realities that are holding economic reform back. “Therefore, the need is for a collective process to take the decisions, to arrive at a minimum common economic agenda, and to own the implementation as well,” he adds.

The stalled reforms have had far reaching effects. Pakistan’s credibility with its creditors has fallen so low that Dr Ehtesham Ahmed, who represented Pakistan on the board of the IMF for three years, says the current program “is dead.” Reportedly, the Managing Director of the IMF even refused to meet with Finance Minister Hafeez Shaikh during his visit to Washington this month.

Moreover, the high level of reserves is making key policymakers complacent towards the situation, Dr Ahmed adds. “Most of this money is borrowed and could unwind very quickly,” he says, pointing out that it took less than one year for “record high reserves” to dwindle to near default levels between October 2007 and October 2008.

The stakes are high, and Asad Umar knows this. If this group of powerful industry leaders fails to get the political awakening required to put economic reform back on track, then Pakistan’s slide into an economic abyss could become unstoppable.

Published in The Express Tribune, April 29th, 2011.

Facebook Conversations

Reader Comments (10)

  • John
    Apr 29, 2011 - 11:23AM

    “Reportedly, the Managing Director of the IMF even refused to meet with Finance Minister Hafeez Shaikh during his visit to Washington this month.”

    If this rumor circulating around is true, perhaps the beginning of end is near. However, in my opinion that political grid lock is also the fault of SBP and finance minster who are dancing to the tunes of the local politics without being firm on their fiscal commitments and promises.

    This gives everyone a free ride. Recommend

  • All BS
    Apr 29, 2011 - 1:21PM

    Good luck Mr Asad Umar, the business leaders must take initiative, not much hope lies with the bogus political leaders. Recommend

  • Adeel
    Apr 29, 2011 - 3:01PM

    Its funny…the same dude Mr. Asad Umer sometimes in late 2007, when his company was multiplying revenues and investment, was crying over the skewness of Musharraf’s economic policies on CNBC…wonder what he thinks about them now! Recommend

  • muhammed ashraf gandhi from lyallpur
    Apr 30, 2011 - 7:58AM

    the state of the economy of pakistan is in collapsible state. this is because the rulers or the economic managers are not giving due attention. the economy can be boostedup only by taking corrective measures irrespective of personal and political interests.no economy in the world can b successful if their r ifs and buts. the exemptions and concessions in any system are always hurdles in the smooth implementation of the system. the economy can only be documented if it is made mandatory for the maufacturers having aturnover of rs. one crore or above to sell their productsto ntm holders and throu cheques not even throu drafts and payorders. the govt will have to take strong measure. thank u mr. khurram for views in the article and varios talkshows.Recommend

  • Afzal+Ali
    Apr 30, 2011 - 8:22AM

    May be a time has come to put a top business person to be incharge of Ministry of Finance. Bankers as FM have ruined the economy.What is needed is fiscal incentives to kick start the economy and build confidence.Recommend

  • Vinayak
    Apr 30, 2011 - 9:39AM

    The government of Pakistan is in a dilemma.

    If they raise taxes, people will protest. Army will then take-over the country, and they will have popular support.

    If they do not raise taxes, economic situation will continue to be dire. Pakistan will loose lot of reputation. There will be runaway inflation, and army will take over eventually anyway. Still, I think Zardari will choose this, because that way he gets to be President for more time.Recommend

  • Shahab
    Apr 30, 2011 - 9:50AM

    Country has to make hard decisions and no party can dare to stake its popularity for such decision given the election are very near. Secondly if such reforms as mentioned by PBC are successful, opposition parties feel that PPP will take it for their advantage in the coming elections. Havign said that It is responsibility of the incumbent government to take the decisions required to steer and govern the country on their own because they have been given mandate to run the country. However if they are not sure that their decisions are aligned with people wishes , they should take a fresh mandate from the people and come back with confidence. PPP is fearful of the fact that they will lose elections if they go now and is known for its disability to take firm and tough decisions so they will not take such decision. So it will continue in this manner and will lose the elections after two years anyway because everybody will be blaming them for the state of the economy at that time.
    In my view grafting an artificial alliance on the economic agenda instead of pushing for mid term election on the economic agenda will expose the incapability of our reluctant political leaders to join forces in the wake of economic crisis and incapacity of the political system to give its players incentives to make such hard decision, strengthening our craving for yet another spell of military/techno government.Recommend

  • Shah Rukh Kahn
    Apr 30, 2011 - 11:36PM

    Pakistan’s economy must be based upon Islam and sharia, and not on the evil machinations of IMF and skewed western models. Only then can Pakistan attain its real greatness! Recommend

  • Anonymous
    May 4, 2011 - 4:07PM

    Shah Rukh Khan, I hope sincerely hope that was a joke.Recommend

  • Anonymous
    May 4, 2011 - 4:08PM

    Shah Rukh Khan, I sincerely hope that was a joke.Recommend

More in Pakistan