July 05 - 11, 20

The current financial year brings in its lap a multitude of fears: the deficit size, already too high at 5.4 percent, set to go up in the face of unmet revenue collection target for the concluded financial year (short by Rs80 billion on FY10 revenue target of Rs1,380 billion); the ambitious revenue target for the current financial; and the VAT issue - still unresolved - raising uncertainties about the economic and financial roadmaps for the year in question.

IMF chief's recent statement on Pakistan's economic condition, however, allays these fears to a certain extent. One can draw a lot of satisfaction from Strauss Kahn's following statement: "There is a lot of concern but no real problem. I think they are going ahead rightly." Regarding VAT and energy prices, the IMF managing director conceded that despite IMF having questions, a lot has already been delivered by the government. Downplaying the leading VAT and energy prices issue, Kahn expressed much concern about the funds flow from other sources. He said, "The question is...does the so-called Friends of Pakistan really deliver and provide the resources, because all the resources needed are not supposed to come from IMF."

The soft IMF stance should provide some breathing space to Pakistan's economic managers. But that does not mean immunity as far as the implementation of VAT is concerned. Efforts to give the implementation a practical shape by taking on board all stakeholders should continue in earnest. The immediate task of the economic managers is to explain on a public forum the implications of VAT and its incidence on the level of inflation on one hand and its contribution to the government exchequer on the other. This is important as country's vested interests are out to extract some political mileage out of this issue. If it is really going to exacerbate inflationary conditions without making any worthwhile increase in revenue, the case should be taken up with the IMF for a review. If not, then it should be explained in very clear terms, with the force of logic rather than rhetoric.

At this important juncture, the analysts will do well to shun personal-score-settling by raising such issues as Pakistan's going to IMF and its perceived negative implications. One of Musharraf's era tier-1 government economists has pointed guns at the recently relieved finance minister by holding him responsible for overly burdening the country by opting for IMF assistance. The said ex-finance minister himself is known to have seriously criticised Musharraf era economic policies. While the said economist can rightly claim credit for the economic achievements made during the Musharraf's rule, his criticism of the ex-finance minister for going to IMF does not make much sense as by now we all know that without going to IMF, we couldn't have mustered much support for our tumbling economy even with the help of best of our friends. Going to IMF was as genuine as deposed government's consumption-led growth model, given Pakistan economy's huge untapped potential to expand. So, these are times to contribute our honest input for the economic betterment of our country instead of wasting our efforts in counterproductive censuring of one another.

The most severe pressure during the current financial year is gong to come from the revenue side. In the absence of a broadened direct-tax base, the achievement of Rs1667 billion revenue target is a tall order particularly when the just-concluded financial year has generated Rs1,300 billion 28 percent less than the estimates for the next year. Given the government's failure to make any serious efforts to reduce government spending, the borrowings from the banking system are certainly going to be much higher than the original budget estimates. This will not only add to the inflationary pressures but will also restrict credit flow to the private sector keeping the economic growth in check for an extended period of time. During the first eleven months of the outgoing financial year, government borrowed from the banking system more than Rs440 billion against a meager Rs75 billion availed by the private sector.

On the external front, the position is not as precarious as it is on the fiscal front. The 11-month current account deficit of Rs2.981 million has recorded a year-on-year decrease of 66 percent. With the most trusted external resource generator foreign remittance still going strong, the external account fears, if any, should not preoccupy our minds, at least for quite some time. The oil prices too are keeping themselves to the stability zone. However, the steep fall in foreign investment is a definite cause for concern. The reason for this downslide can easily be traced to the global economic slowdown and domestic political and security conditions. The foreign investment flow cannot be expected to resume unless the two sets of conditions improve. We will feel acute external account pressures once the IMF SBA drawdown is completed and repayments start.

On energy front too, no exigency plans are afoot. Government heavily busy, as usual, with non-economic issues, hardly finds time to measure the extent of damage this long standing problem is causing to the economy.

Signing of Iran-Pakistan gas pipeline agreement could well be a theoretical milestone, but it hardly promises anything tangible in the short run. To many, it's a doubtful starter, and to some, even a non-starter. It will take four long years and a US nod before we get the gas supply. All right, we can wait. But in the mean time why not to give a try to Dr Samar Mubarak's idea who, according to a leading Urdu press columnist, has conceived Thar-coal-gasification project seeking coal conversion to gas without involving the process of coal-extraction. The gas so produced can be used for power generation. The coal deposits can give us 50,000MW per annum for 800 years. This might seem a pipe dream, but our coal and mineral resources are a reality. We need such dreams to propel us to the arena of possibilities. Let Dr. Samar demonstrate how dreams are changed into possibilities and possibilities into realities. We have a lot of economic fears. Let us now turn our attention to economic hopes.