|
Development
strategy in changing economic realities
By M. Sharif
Ground realities on the economic front have
changed radically, domestically as well as globally during the past couple
of years. The changes have had far more deepening effect on economic
development strategy pursued in the country during past few years. It has
directly affected all segments of the society except the affluent people
and has given rise to a host of fiscal management problems currently faced
by the government. The economic policies did not show enough resilience to
rescue either the people or the economy. In order to address current
economic issues, hard economic decisions mostly pro-poor people is
necessary and focus on higher economic growth of around 8.0 per cent of
the GDP per year will have to be planned and tight management policies to
achieve this goal will also be necessary. All this is not going to be an
easy task for any government.
Economic realities and priorities
Political uncertainty that has prevailed in the
country for more than a year has affected economic growth and the
macroeconomic indicators adversely. The budgetary targets fixed for
current fiscal year seems to be a far fetched goal. Economic growth has
already been reduced to around 6.0 per cent from 7.2 per cent, fiscal
deficit so far has been estimated at Rs557 billion that is likely to be
more than 6.0 per cent and is likely to increase by the end of the current
fiscal year. Pak rupee has depreciated to around Rs65 per US dollar
against a stable parity of around Rs60.0 per US dollar maintained for
quite a long time and inflation has already hit 10.0 per cent mark against
a target of 6.5 per cent. Other macroeconomic indicators such as public
debt and the cost of servicing, exports, trade and current account
deficit, revenue collection, forex reserves and non-development public
expenditure do not make a happy reading.
Fiscal issues have emerged in the midst of a number of
challenges faced by the economy primarily because of the structural
imbalances that were let to stay during the past eight years. There are a
number of fiscal and monetary issues that the government and the SBP are
to address at the same time, a short, medium and long term goal oriented
development strategy has to be implemented.
Challenges faced by the economy and people of Pakistan
can be prioritised thus: energy crisis, high food and non-food inflation
and structural imbalances in the economy. Allied problems faced by the
power sector include high cost of electricity for commercial and domestic
consumers, electricity theft, minimum three years time required to bridge
the existing gap between demand and consumption, arriving at national
consensus to build mega hydro-electric dams.
The core issue about addressing inflation is reducing
food inflation that has taken quantum jump because of neglect of
agriculture sectors not over the years but over the decades. There are
three specific problems of the sector that need to be addressed
judiciously and as early as possible.
One cost of inputs like fertilisers, electricity,
seeds, pesticides and labour has gone up whereas increase in the price of
farm commodities has moved at the snail pace to the disadvantage of
farmers. It needs to be reduced. Wheat and sugar-cane are the two often
quoted farm products that create a lot of problems for the consumers,
farmers and government alike. Their low prices at the time of harvesting
tend to be devastating for the growers and every year the problem comes up
with full intensity to the disadvantage of growers and to the advantage of
market players.
The yield of farm products per acre is perhaps the lowest in the region. It is intrinsically
linked with modernising farming in the country, making farmers more
knowledgeable and ensuring adequate irrigation water supply during rabi
and khareef.
Water management is a real big challenge in view of
shortage of water that is now a reality. The issue simply highlights the
need to build water reservoirs at the earliest. Three, provision of
adequate facilities and opportunities to farmers to contract loans from
the banks and market their products at competitive prices. They should not
be left to the market forces and players like investors and middle men
because their approach is quite detrimental to the interests of farmers
and agriculture sector.
Another issue is about improving structural imbalances
that were relegated amidst the glare of consumption based high economic
growth and macro-economic stability achieved after 2003. One has to
appreciate efforts of the previous government for achieving twin
objectives of high economic growth and macroeconomic stability. But, the
moot point is about sustaining them, making economy self-reliant and
enabling the people to benefit from economic growth. These objectives
could not be achieved because of structural imbalances that have existed
in the economy during past many years.
Some of the issues are: increasing revenue by
collecting taxes within capacity of stakeholders belonging to different
segments of society, increasing domestic savings from current rate of 17.0
per cent to around 22.0 per cent, levying tax on real estate, stocks and
agriculture income, striking balance between income and public expenditure
by reducing non-development expenditure. Going further, documenting
economy, keeping current account surplus, contracting loans for
development of such projects that would give impetus to economic growth
and development and rationalising expenditure on different stakeholders in
the state. It is an exercise that not only needs down to earth planning
but it also needs a strong will power to bring an effective change. Can
the coalition government demonstrate acumen and will power to opt for
radical changes that might hurt the interest of many of their supporters?
Irrespective of any such consideration, the essential point is that unless
structural imbalances were removed, the economy would keep facing the
crisis of sustaining itself time and again and government will have to
look outward for financial assistance as is happening at present.
Immediate measures by the government
The government has taken a few immediate measures to
bring certain degree of fiscal discipline in the economy. These measures
include reduction of Rs70.0 billion in public sector development
expenditure to reduce fiscal deficit, increase in the price of petroleum
products to pass on increase in price of oil in international market to
consumers that is likely to fuel inflation further and to improve supply
side of agriculture products particularly wheat by taking certain
administrative measures and importing around shortfall of around 1.5
million tons in production. It is also trying to raise forex reserves by
around $3.0 billion to beef up the reserves that have depleted to $12.65
billion as on 24 April, 2008 and are under much pressure because of high
trade and current account deficit. SBP has also intervened to stabilise a
depreciating rupee.
Current account deficit has swelled to $10.3 billion
during first nine months of current fiscal year against $6.41 billion
during corresponding period of last fiscal year, showing an increase of
60.0 per cent. In view of limited time for which the government has been
in power, there is not much that it could do but keeping in view the
challenges that the economy faces it will have to work on strategies that
make use of energy efficiently, use public expenditure judiciously in the
best interest of public and should prioritise public expenditure for
different state stakeholders according to the services they provide to the
state and public.
Budget proposals for FY2008-09 to be announced by the
government a few weeks later will clear the clouds about the strategy of
economic developed that the government is to adopt. It has to be radically
different from the past and hopefully it would be.
Conclusion
The issues faced by the economy are multi-faceted and
are a result of partially inadequate economic policies and partially
because of recent trends in global economy. The solution to these problems
lies in adopting multi-pronged policies through transparent democratic
governance that should not only address woes of stakeholders but should
also hold them accountable. Only such a system will ensure public
participation in economic development, enable equitable distribution of
national wealth and create environment for benefits of economic growth to
trickle down to lower strata of the society.
|
