Daily Times Editorial June 4, 2011

State of the economy

Not surprisingly, the Economic Survey 2010-11 unveiled by Finance Minister Abdul Hafeez Sheikh in a news conference on Thursday lists a litany of reasons why all targets were missed and the economy’s growth slowed down. Amongst the negative factors impacting the economy, pride of place belongs to last year’s devastating floods, the energy crisis, the hike in international oil prices and the internal and regional security challenges. The economy grew only 2.4 percent against a target of 4.5 percent. The average growth for the last three years of the PPP-led government pans out at 2.6 percent, the lowest in three decades. During the same period, Asian countries grew by 8.4 percent, with India, Sri Lanka and Bangladesh recording growth of 7.7, 6.6 and 6 percent respectively.
The finance minister revealed that the floods in 2010 affected 1.6 million families and caused damage of $ 10.5 billion to infrastructure, agriculture and other assets. It must be said that despite the earlier sympathetic noises by the international community, the actual help to flood affectees and the rehabilitation of infrastructure, etc, has fallen far short of expectations or commitments. Even well meaning local philanthropists seem to have run out of steam, leaving millions still living under open skies and without opportunities to rehabilitate their incomes and lives.
The energy crisis includes not only a shortfall of supply versus demand, but a chronic circular debt of some Rs 120 billion, which is exacerbating the shortage of electricity generation. The government’s strategy for meeting the energy crisis, comprising short- medium- and long-term measures, appears to have run aground at the first hurdle, the Rental Power Projects’ scandal-hit effort. Independent Power Projects, representing the medium-term component of the strategy, appear to be crawling along in implementation. The long-term component of dams, prime being the Bhasha Dam, are stuttering because of financial constraints and the difficulties of generating the finance at affordable cost from the international donors. Renewable energy is still an infant that has to grow teeth before it can make any kind of impact.
While Pakistan, dependent as it is on oil imports, can do little about the spike in international prices of POL, what is conspicuous by its absence is any semblance of a strategy or campaign to conserve energy, which logically would seem to suggest itself as a demand dampener. The energy crunch has impacted industry and commerce seriously, with factories closing down or functioning at low capacity, and trade too suffering customers turning away because of inconvenience and the inflationary spiral biting deep into their purchasing power.
The struggle against terrorism and the open declaration of war against Pakistan by the Tehreek-i-Taliban Pakistan and al Qaeda have led to the worst security climate within memory. Let alone foreign investors, even domestic investors are shy and some have despaired of the interminable security and energy crises to shunt their capital to more salubrious climes abroad. Terrorism is the illegitimate, but inevitable child of the misplaced jihadi enterprise beloved of our military establishment for the last four decades, whose chickens have by now come home to roost with a vengeance. There are growing calls for revisiting this policy, but so far it appears, despite the setbacks in Abbottabad and Karachi, that the military’s point of view is set in stone, despite its own, and the people’s grave losses. Inevitably, Pakistan does not have a hope in hell of attracting any kind of investment, domestic or foreign, unless peace is restored by taking out the terrorists without discrimination or being waylaid by spurious notions of ‘good’ and ‘bad’ Taliban.
Last but not least, the State Bank of Pakistan’s (SBP’s) tight monetary policy and maintaining high interest rates, ostensibly to keep inflation in check, is clearly not working to keep a lid on prices. Inflation officially rose to 12 percent, although this figure is disputed by independent analysts as well as empirical evidence. Since core inflation is related to food prices, the impact of the high interest rates has been to dampen private sector borrowing, crowded out as it is further by government’s dipping into the SBP and commercial banks’ coffers.
On the eve of the budget, the government needs to prioritise the elimination of the bottlenecks listed above to the revival of the economy through visionary, creative, out-of-the-box thinking, not the clichéd and failed nostrums of the international lending agencies and the western governments that swear by them.