Economic survey 2009-10: an appraisal

By Majeeda Aqeel

Economic Survey (ES) released by the federal government on 4th June depicted an all-round poor performance by the economy during outgoing fiscal year for multiple reasons of energy shortages, global recession, challenges in the form of internally displaced persons (IDPs) and lack of visionary management of the economy during past few years. The government has missed virtually every main macroeconomic target for the outgoing fiscal year. It has a difficult job of not only containing the slide down in economy, but it has also to regain lost growth momentum and macroeconomic stability within shortest possible time. The budget makers had a difficult task in this backdrop.

According to the ES, the GDP growth has been estimated at 4.1 per cent for the current fiscal year which was 1.2 per cent in 2008-09. Likewise, the inflation target was fixed at 12 per cent by the government in the current fiscal year, which in reality stood at 11.5 per cent in the first 10 months of 2008-09. The per capita income reduced from the finalised figure of $1,071 last year to $1,051 in 2009-10. The survey reveals that unemployment rate increased to 5.5 from 5.2 per cent last year. Major risks to growth and stabilisation include non-implementation of the reform of general sales tax (GST), and other significant tax broadening measures.

The agriculture sector’s production during 2009-10 (July-June) remained below the target as it grew by only 2 per cent against 3.8 per cent. Last year it grew by 4 per cent.

However, some areas of the economy showed signs of improvement. Livestock grew by 4.1 per cent, industrial output increased by 4.9 per cent while the services sector grew by 4.6 per cent. Current account deficit was expected to contract to 2.8 per cent of the GDP, due to a slight improvement in the balance of payments. Increase in workers’ remittances was also witnessed in the outgoing fiscal year. Though foreign direct investment (FDI) declined by 45 per cent but the investment level in the country remained healthy.

As stated in the survey, the total public debt enhanced further by Rs883 billion during the first nine months (July-March) of the outgoing fiscal year as it shooted to over Rs8,160 billion in 2009-10 against Rs7,277 billion in 2008-09. In 2005, a single Pakistani owed Rs26,649, while the figure rose to Rs80,000 in current fiscal year. This rise in public debt leads to a high fiscal deficit.

The country’s escalating debt, inflation running in double digits and other financial hurdles have put the economy in danger zone. The current account deficit can be addressed by boosting exports that would be possible only if value-added products are produced and political stability prevails in the country. The present situation on both the accounts is difficult to address. The government should adopt strict fiscal discipline and drastically cutback its non-development expenditures. Much will depend upon the fiscal and monetary measures that the government and the State Bank of Pakistan (SBP) would enforce during FY10-11 to address macroeconomic challenges confronting the economy.

The most serious problem that threatens the society is the high inflation rate, despite the tight monetary policy pursued by the SBP so far to tackle it. According to the ES, inflation which stood at 11.5 per cent is undoubtedly less severe as compared to last year's 22 per cent, but is still too high to be a cause of comfort. The contributory factors for this include weak supply and high demand triggered by increase in prices of essential items in the international markets and weak political will of the government to take action against profiteers, smugglers and hoarders.

It goes without saying that the persistent economic assistance from the International Monetary Fund (IMF) did help to take the economy out of crisis situations, however, the fact remains that rethinking the economic policy is severely needed. The answer to the economic woes lies in enhanced mobilisation of domestic resources through direct taxation and exports of high value-added goods. This would help in achieving sustainable development. A wise approach is direly needed to put the economy back on track to solve the issues related to debt servicing, high inflation and unemployment, and surging poverty level.