Jan 2 - 8, 2012

According to the SBP's annual report for financial year 2011, Pakistan's GDP was recorded at only 2.4 percent as compared to the target of 4.5 percent and the actual growth of 3.8 percent registered in the previous year.

CPI inflation averaged 13.9 percent as against the target of 9.5 percent and most of it was contributed by food inflation.

Investment rate at 13.4 percent during the fiscal year was the lowest since 1973-74. The fiscal position of the country also remained under great strain during financial year 2011 and overall budget deficit was 6.6 percent of GDP as compared to the target of four percent.

With the decline in foreign funding, the government borrowed Rs1.1 trillion from domestic sources.

The downfall of fixed investment, acute energy shortage, urban violence and lawlessness, and poor physical infrastructure were responsible for the poor performance of the economy.

The level of growth was unsatisfactory compared to other south Asian countries. The State Bank was of the opinion that domestic factors were more decisive and chronic for poor performance of the economy.

The central bank showed concern over poor governance, the waste of limited financial resources by loss-making public-sector entities and overall low economic growth. The bank was distressed over growing power shortages, the rising fiscal deficit, increasing public expenditure, and declining tax revenues.

It stressed the need for coordinated documentation, transparent revenue collection with oversight, an equitable plan to capture all commercial and businesses institutions into the tax net, and a restructuring agenda for loss-making public sector enterprises.

The bank emphasized the need for improving economic management, implementing fiscal and governance reforms as well as strengthening institutions for economic recovery.

The issues of fiscal problems and energy shortages must be effectively dealt to escape the current state of stagflation. It blamed both internal and external factors for the current state of the economy.

Unfortunately, the government has not been able to make any progress in the proper direction so far and is also not expected to give due attention to these issues in the approaching months due to the fact that year 2013 would be an election year.

For the fiscal year 2012, the SBP has advised the policymakers to formulate "a comprehensive medium-term fiscal reform master plan, which is staggered and sequenced on the basis of hard lessons of the recent past".

The poor global economic conditions and the capital inflows drying up is forcing the government to borrow heavily from commercial banks. With this precarious economic condition, controlling inflation is a daunting task.

Widening current account deficit does not encourage multilateral and bilateral financial assistance and private investments. The government's weakening financial position and declining foreign exchange reserves have already put pressure on the exchange rate and accelerated dollarization of the economy.

State Bank has given an objective and enlightening report of the economy of the country. It is now for the government to take tough and popular decision to put the economy back on the growth trajectory. This can only be done if the government makes an earnest effort to rid itself of the incompetent ministers and bureaucrats in different departments.

IMF did not see improved budgetary and external account position of Pakistan and that could create difficulty in payment of external debt in the end.

A representative of the fund said Pakistan's ailing economy badly needed immediate remedial measures, as balanced current account position could be affected by the financial meltdowns around the world and Pakistan's authorities had the ability to manage the internal and external accounts through corrective measures.

Fiscal year 2011 was a very difficult year and the misery was compounded by devastating floods.