Stumble or Fall

The rate of growth is on a declining trend. Hence, declining GDP growth means increasing poverty and unemployment, and widening gap in average incomes of the relatively better performing areas in the country and those that are more backward. This is clearly not a good picture.

Recent public rallies and gathering have demonstrated that people are becoming increasingly impatient. As economists & analysts have stated for years, the feeling of deprivation not only deepens anger among those who are concerned that they have been left behind, but their dissatisfaction also evident in the form of a challenge to the authority of the state.

That is what the world has seen in the political explosion on the Arab streets. It is this discontent that has increased, to a considerable degree domestic terrorism in Pakistan. Ongoing problems with domestic security have taken a serious economic toll, which by no means is looking to end in near future.

There is a common perception that the fiscal situation is unlikely to improve due to the delay of structural reforms on the taxation and expenditure fronts, as the political process is moving towards elections, with focus shifting towards policies meant to earn popularity rather than achieving long term goals.

As opposed to these concerns, there is a degree of complacency arising from the present record level of foreign exchange reserves of over $16.802 billion and resilience in exports and remittances, which have led to a reduction in the balance of payments to $-2.41 billion. There is need, therefore, for undertaking the economic scenario analysis linked to the type of political developments that are likely to take place and which will largely determine the extent to which major structural reforms are undertaken.

Given the on hand problems of supremacy, including misconduct and fraud, government organizations have suffered heavily and require bail out. As for now, no actions have been taken to curtail current expenditure or event to increase the base of revenue generation, while the gap between both continues to be adjusted by curtailing development expenditure. The circular debt problem is growing like a sleeping monster. The PSDP is increasingly own the behest of government spending for purposes other than development specifically before the elections. This would eventually lead towards increasing gap between non developmental and developmental expenditure which would have a direct impact on economy of Pakistan

So, the administration would have to take on measures for the introduction of the reformed general sales tax, withdrawal of exemption on goods, broad basing of sales tax on services, introduction of wealth tax and development of provincial taxes. The federal tax administration needs to be renovated. Under invoicing has to be checked and massive evasion of taxes in the shape of Afghan Transit Trade and subsidies to public enterprises must be eliminated.

If surgery is required to eliminate dishonest and unproductive, then no matter how influential the connections, the task must be performed. The size of the Cabinet must be reduced. A reduction in the non-salary cost must occur and be sustained. A reform in the monetary policy would require granting full autonomy to the State Bank; limits must be placed by Parliament on the borrowings from it. Overdraft limits must be enforced on commodity financing and borrowings by the provincial governments.

A policy rate should be established to counter inflation. The balance of payments policy, too, needs to be brought into the reforms net. To begin with, there should be no interference in the foreign exchange market; export controls should be taken back and burden of selective tariffs should be placed. If the proposed reforms are undertaken, a gradual recovery in the GDP growth rate from 4 percent in 2011-12 to almost 5 percent by 2014-15 can be expected due to some revival in the level of investment in the economy.