Economic outlook

THE World Bank’s annual report on global economic prospects contained a mixed picture for Pakistan. GDP growth is expected to increase to 3.9 per cent this year compared to 2.4 per cent in 2010-2011. But the country “continues to markedly lag outcomes elsewhere in the region”, reflecting poor infrastructure, “worsening security conditions … greater political uncertainty and a breakdown in policy implementation”. Pakistan’s growth rate will be the lowest in South Asia this year. Fiscal discipline and revenue generation are still not where they need to be, making it difficult to bring down inflation further and putting essential social expenditure at risk.

That is not what one would have thought listening to Prime Minister Yousuf Raza Gilani’s speech in the National Assembly on Thursday, where he claimed that improvements in certain indicators this fiscal year were the result of the government’s economic policies and reform efforts. The fiscal deficit and the inflation rate have indeed been brought down. But talk to independent experts, and a worrying picture emerges. While they acknowledge these improvements, they also caution that these have not resulted from structural changes and are not expected to last till the end of the year. Tax collection, the prime minister argued, has gone up by 27 per cent. But much of this is due to the recovery of amounts pending from previous years rather than an improved collection mechanism. The fiscal deficit is expected to go up as elections approach and removing subsidies and cutting spending becomes too risky politically. Meanwhile, the country remains dependent on a number of foreign inflows that are either one-offs or uncertain, such as stalled Coalition Support Funds, privatisation receipts and income from the sale of 3G licences. A slowing global economy could well affect currently healthy export prices and remittances. Government borrowing from the private sector continues to crowd out private investment and growth was not mentioned in Mr Gilani’s speech, an alarming sign in a country that has to accommodate a mushrooming pool of workers.

It is true that growth, inflation and deficit numbers have all shown improvements this fiscal year. But without a commitment to structural reform — insulated as far as possible from politics — they cannot be sustained. Especially in the context of a precarious global economy, Pakistan cannot become complacent about getting its house in order. Tough choices such as restructuring public-sector enterprises, removing subsidies and widening the tax-collection net need to be made. Despite some positive numbers, it is still not clear if the current government — or its possible successors — have the backbone to do so.