ENDLESS ECONOMIC STRESS
ABNORMAL HIKE IN POWER TARIFFS, FOOD INFLATION, WEAKENING PAK RUPEE, POVERTY LEVEL, CRIME RATE, AND LOAD SHEDDING ARE BRAZENLY NOTICEABLE.
Dec 27, 2010 - Jan 2, 2011
The year 2010, full of events, has finally come to an end yet the endless economic stress will continue to prevail in the 2011 as the harsh decisions are still in the pipeline.
In fact, the situation calls for an emergency plan responding more to the domestic needs rather than serving the interest of international donor agencies to combat unabated energy crisis causing a widespread impact on the economic and social life of the nation. If the national interest has any consideration in the eyes, hearts and minds of the political stalwarts they should sit together for restoration of economic peace rather than giving high priorities to political and party interests.
Judiciously speaking, it was due to lack of vision, sincerity on the part of the decision makers of the governments in the past that led to a situation where the people had to suffer and go through the torturous power load shedding of long durations to the extent of 12-16 hours a day during entire year of 2010, damaging to the economic movements, in particular export oriented industries, and commercial activity at a massive scale.
The industries especially the textile industry, which is the economic mainstay of the country, had to shut down operations in a large part of Punjab due to gas load shedding which adversely reduced the GDP growth rate at 2 percent compared with the highest population growth rate in the country.
It was interesting to note that when gas load shedding forced a large number of textile units to close down in Faisalabad, Sialkot and Gunjranwala, the provincial government of Punjab led by Shahbaz Sharif also decided to side with the industrialists and declared that if the gas load shedding was not stopped he would join the protesting industries and demonstrate on the Mall road to do away with the gas rationing to the industries.
The provincial government of Punjab led by Pakistan Muslim League (N) while seriously criticizing the gas management program has raised the voice against what they called the province was ill treated in the gas rationing.
One of the difficult decisions taken by the government include two percent hike in power tariffs every month till June 2011 and that is potentially capable to add up to the high inflationary pressures persisting in the country. While the high priced electricity, diesel and other petroleum products have also triggered the food inflation, consequently responsible for rising crime rate on the back of high level of unemployment among the educated youth and rising poverty level in the society.
The pinch of the rising inflation is really felt by the majority of the population which has lost the purchasing power and is facing acute financial constraints on the face of stagnant economic activity. However, the heavy reliance of the government on the banking system for meeting its financing needs is significantly rising as its borrowing to over 340 per cent from the State Bank of Pakistan for budgetary support has crowded out the private sector from the economy activity.
In order to contain rising inflation the central bank has no option but to increase the policy rate to 14 per cent for the banking sector while the interest goes much higher for the loan seekers from the commercial banks, the prime reason for a depressing the economic activity.
According to available data, the government borrowed from the central bank for meeting its budgetary needs in the first half of financial year 2011, Rs261 billion to Rs336.6 billion, or exactly speaking, 346 per cent more over Rs75.5 billion in the same period of 2010.
Besides borrowing from the State Bank of Pakistan, the government had also borrowed Rs82.563 billion from scheduled banks during first half of the financial year 2011 from July-December 2010. Hence, the heavy reliance of the government on banking system for financing its needs is becoming a key risk factor in achieving the basic objective of the financial system especially containing of the inflation, which should be taken as a challenge by the financial managers.
Under the tax reforms the government endeavoured to introduce Reformed General Sales Tax (RGST) aimed at improving the size of tax collection. However, it not only stirred the stakeholders in the private sector but also attracted the attention of the political parties strongly opposing the government intention for implementation of the said tax. It is said that though under the reformed version of the tax the tax rate would come down from 16 to 15 per cent across the board yet the privilege of exemption to certain sector would also be done away with which is the move suggested by the IMF for improving the volume of revenue.
POL PRICE HIKE
Globally, the oil prices have registered 15 month high to the level of $90 per barrel which consequently affected the price level in Pakistan as well. However, the pinch of domestic oil prices was more severe in the country due to heavy taxation on POL products.
The IMF however ignoring the income level of the people in Pakistan stressed the government for further increasing the fuel prices in line with the international oil prices. However, the government on its part realising the possible heightening of noise at a massive scale avoided an increase in retail fuel prices especially when one of its allies i.e. JUI decided to sit on the opposition benches while relations with another key ally MQM were also strained on certain issues including RGST. Hence, to avoid any political stir the government has wisely decided to reduce the tax rate on fuel prices instead of passing it on to the consumers.
The current economic situation is giving a tough time to the people in the backdrop of depressed economic situation. It is the time that the government to take people on its side should not brook the harsh conditions of the IMF just to borrow more money from the donor agency. It has to take decisions responding to the needs, hopes and aspiration of the people they pinned for redressing of their economic sufferings when the peoples' government had taken over the charge some three years back with the promises of bringing peace, prosperity and progress for the country.