June 11 - 17, 20

Present government missed most of its economic targets in the fiscal year ending on June 30, according to Economic Survey of Pakistan, which was last month unveiled by Finance Minister Dr. Hafeez Shaikh. The country's economy grew by 3.7 per cent, against the growth target of 4.2 per cent set for the current fiscal year 2011-12. He claimed the government was able to curtail inflation bringing it down to 10.8 per cent in the first 10 months of the outgoing fiscal year as compared to the 13.8 per cent in the previous year.

Critics say that 12 per cent is a revised target for inflation and the government has actually missed the original inflation target of 9.5 per cent set for the current fiscal year. The inflation remained in double-digits for the consecutive fifth year.

To the Shaikh's claim that the tax collection brought up an "unprecedented" 25 per cent, the critics say that tax collection numbers as given by the finance minister cover 10 month period, which are comparatively higher than the numbers in same period last year, but the government is likely to miss the target of Rs1952.3 billion set for the outgoing year. Tax collection stood at Rs1426 billion during July-April 2011-12, over Rs1149.8 billion collected during the corresponding period last year.

The tax authorities failed to meet the monthly targets in first ten months (July-April) of the current fiscal year. Federal Board of Revenue (FBR) headed by Mumtaz Haider Rizvi collected Rs1,424 billion in first ten months, while Rs528 billion are more required by June 30 to meet the annual target.

Shaikh clarified at a recent news conference in Islamabad that the economy would have grown at a higher rate if it were not hampered by extensive flood damage to crops and infrastructure in the Sindh and Balochistan provinces, and threats to the global economic recovery.

"The growth rate remained 3.7 per cent and it is the highest in the past three years," AFP reported Shaikh as telling a news conference." The growth rate for a country like Pakistan should be at least five to six per cent and this is our medium term goal," he said.

The fiscal deficit in the first 10 months stood at five per cent of gross domestic product (GDP), compared to 5.5 per cent in the same period the previous year, according to the economic survey. Critics say that the government has already missed its revised fiscal deficit target of 4.7 per cent of GDP, which has been projected by International Monetary Fund (IMF) to reach seven per cent of GDP in the current fiscal year. The country's fiscal deficit surpassed full year original target of four per cent just in first nine months of the current fiscal year when it stood at 4.3 per cent of GDP.

The country's public debt rose 12.3 per cent to Rs1.3 trillion in nine months of the outgoing fiscal year compared to the corresponding period of last year. The government excessively borrowed from the banking system to finance the widening fiscal deficit. The government increased its direct borrowing from the central bank, printing money to cover the budget deficit, instead of raising taxes. The government has so far borrowed Rs442 billion from the central bank in the current fiscal year.

The country's central bank seems unable to check the inflation-fueling government borrowings, though it has issued several warnings that fell deaf on the government's ears.

"I still have autonomy, but not enough to bounce a cheque from the government, governor of the state bank of Pakistan (SBP), Yaseen Anwar, said in an interview with a foreign newspaper.

The uninterrupted borrowing from central bank and scheduled banks has already caused an expansionist monetary growth and increased currency in circulation, which has accelerated inflation making it difficult for the economic managers to control the fiscal deficit.

"The total expansion of currency is higher than ever, so it is already reaching dangerous levels. It has to be arrested by drastic remedial measures," AFP reported Sartaj Aziz, former finance minister and vice chancellor of Beaconhouse National University as saying.

It is ironical that present government considers printing more currency notes as a panacea for the country's economic woes. Last month, Prime Minister Yousaf Raza Gilani chaired a cabinet session and suggested that the energy crisis could be overcome by printing more currency notes.

"We can print currency notes and pump capital into the electricity sector in order to overcome load-shedding," a local newspaper reported Gilani as saying.

Federal government has betrayed its commitment to keep borrowing from the central bank at zero level on quarterly basis as its borrowing increased from the central bank by end of third quarter of the current fiscal year. The frequent money injections by the central bank to settle liquidity issues of the banking system are an indirect borrowing from the central bank, which has the same inflationary effect as borrowing from the central bank.

The government is involved in higher borrowing from scheduled banks than the central bank, which injects money at around 12 per cent through open market operations, while the government borrows the same at higher interest rates from large banks, whose profits rose by 27 per cent last year.

Budget deficit widened due to a slowdown in aid flows and foreign investment. Foreign direct investment (FDI) in the country registered a decline of 64.7 per cent to $563.3 million in 10 months of the current financial year as against $1.031 billion in the corresponding period of previous financial year.

The US has withheld payments on the account of Coalition Support Fund (CSF) amounting to $800 million for current fiscal year linking it to resumption of Nato supplies through Pakistan to Afghanistan. Nato supplies were blocked following a cross-border Nato air attack on Pakistan army post that killed 24 Pakistani soldiers in November last year.

The situation is likely to force the government to borrow more money from the banking system or print more money to finance its fiscal deficit. The government's borrowing from the banking system has witnessed a quantum jump of 98 per cent owing to massive expenses in the election year. Critics say that the government's increased reliance on domestic borrowing is a highly inflationary policy as it is not backed by an increase in productivity.