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2010 begins amid hopes and fears - Printable Version

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2010 begins amid hopes and fears - Muhammad Adnan Arshad - 02-02-2010

It is hard to believe that another year has passed by so swiftly and the New Year 2010 has already started, bringing with it fears and hopes of an economic recovery. The national economy is still plagued by terrorism, chronic load-shedding, rising cost of electricity and gas, higher mark-up rates that push up the cost of doing business, stagnant economic growth and declining exports, persisting food inflation, higher budget deficit and growing internal and external indebtedness, inability to raise tax to GDP ratio and a trade deficit that is still unsustainable, despite some improvements in recent months.

As against the afore-mentioned challenges, there are no doubt some redeeming features, also, such as the marginal growth witnessed by the manufacturing sector recently, higher production of wheat and cotton, a rising trend in the income from home remittances that is proving immensely helpful in keeping the current account deficit at a lower level and the strengthening of the country’s foreign exchange reserves - thanks to the considerate and accommodating attitude of the IMF at present.

However, it would not be advisable for the government to rely wholly on external support. We need to redouble our efforts to boost our agricultural and industrial production, raise exports by bringing about diversification in the list of exportable commodities and exports markets, bring down non-development expenditure through austerity measures and raise our tax to GDP ratio by bringing all those sectors into the tax net which are presently exempt from taxes, keep the prices of essential commodities at a reasonable level by boosting supplies and checking hoarding, profiteering and smuggling etc. and, last but not the least, provide relief to the down-trodden, who are hard-pressed at present, due to surge in the prices of items of daily use such as sugar, wheat flour, electricity and gas etc.

Despite hopes and expectations about early recovery of global economy, outlook for immediate future does not appear to be bright. In spite of positive growth in the last quarter, unemployment rate in the US still hovers around 10 per cent, due to which consumer spending is likely to remain depressed for the time-being. Similarly, in the European Union and Japan, also, the economy is still not completely out of the woods. Since the above-mentioned countries are leading trading partners of Pakistan, exports from this country may remain at a lower level in the coming months. Moreover, foreign investment into Pakistan is also not likely to witness any marked improvement during the next few months, for the same reason.

Besides this, the long dry spell accompanied by an acute shortage of water stares the country’s agriculture sector in the face. During last year, the bumper wheat, cotton and rice crops came to our rescue. If the agriculture sector shows poor performance during the current fiscal year, due to drought, the consequence for the country’s economy may be disastrous. A very ominous development, at the global level, during the last few months has been that world food and commodities prices have once again started showing a rising trend, although current prices are still considerably lower than the peak reached around mid-2008. The setbacks arising out of the above-mentioned situation can be met only by boosting the agricultural production and correcting the marketing and distribution system for essential commodities by having an effective check on hoarding, profiteering and smuggling etc.

The government is no doubt presently constrained due to natural factors such as drought and paucity of water, local factors such as terrorism and international factors such as a slow global economic recovery and rising international food and commodities prices. However, there is much that the government may still be able to do, in order to improve the country’s economic performance and meet the obstacles underlined in the preceding paragraphs.

First and the foremost, the government should give top-priority to dealing with terrorism, as the same is adversely affecting growth, employment and domestic and foreign investment. No doubt, the country’s brave armed forces had achieved remarkable success in the war against terrorism in Swat and South Waziristan. However, some of the latest incidents show that the terrorists, who have now started a guerilla war, are still able to deal a deadly blow, whenever they like to do so. While the operation of the armed forces against the terrorists still continues, this is now the time for the political government to deal with the problem in a political manner. A political leadership is never short of innovative ideas to deal with such internal problems. The government should, therefore, come forward and use its cards to defeat the menace.

Secondly, the government should focus on the agriculture sector, in view of the long dry spell and rising food prices in the local as well as international markets. Technologies such as drip irrigation, aimed at making the best possible use of limited water resources, may be acquired from China. Besides, we have reached an understanding with this friendly neighbour on so many issues including technical cooperation in agriculture sector. The government should, therefore, act speedily to acquire the technology regarding seeds in order to raise our yield per acre of various crops. The agriculture sector is our lifeline at the moment and no stone should be left unturned to ensure that this sector continues to show a satisfactory performance, despite adverse climatic conditions.

Thirdly, in view of an alarming increase in the country’s external indebtedness during the last couple of years (from $46 billion to $56 billion), there is a dire need to formulate a contingency plan, aimed at saving the economy from a possible debt trap and helping the country stand on its own feet. Such a plan would necessarily have two components. First, the government’s non-development expenditure would have to be curtailed by at least 25 per cent to 30 per cent and, second, tax to GDP ratio may be raised from the current level of 9 per cent to 15 per cent which is the average for the developing countries. The afore-mentioned increase in tax collection may be brought about not by further burdening the already taxed sectors but by ending all tax exemptions. Let every citizen pay tax on his income, irrespective of the sector to which he belongs. Only then would the tax system be able to ensure maximum revenue collection and pave the way for the country’s self-reliance.

Last but not the least, the poorer sections of the society in Pakistan are presently in dire need of relief. This is, firstly, because prices of items of daily use such as wheat flour, vegetable ghee, pulses, sugar and tea etc. have risen considerably during the last couple of years, while incomes of the poor have not increased in that proportion. In addition to this, it is feared that hundreds of thousands of people might have lost their jobs due to terrorism and load-shedding, which has resulted in the closure of many manufacturing units. While the government has launched its poverty reduction program by handing over cash to the poor under the Benazir Income Support Program (BISP), there is also a need to expand the existing micro-finance program in order to provide relief to the maximum number of people, belonging to the lower income categories. Furthermore, the existing internship and training programs need to be expanded to make the unemployed youths in this country employable either in the local or international labour markets. If employed, the poor would be in a much better position to face the dilemmas arising out of the rise in food prices and increase in utility charges.

by Aftab Ahmad
(Source Daily The News)