World Bank’s advice
While the new government is learning to walk, the World Bank (WB) has warned it to watch its steps on its way to economic stability. The WB has advised the new government of Pakistan to carry out economic reforms and make quick adjustments to steer clear of an economic crisis. The reminder to keep in view the economic aspect while making policies came from Praful Patel, WB vice president, at the end of his three-day visit to Pakistan. Patel’s word of caution reflects his concern that Pakistan is likely to miss targets of fiscal deficit, current account deficit, inflation, and foreign exchange reserves. Patel has observed that there is no crisis at the moment but he believes that the economic indicators of Pakistan are not a good omen for the future economic picture of the country. According to Patel, the economic growth Pakistan had seen over the past few years, in addition to foreign direct investment and remittances, could be maintained only if the government had adjusted to the global prices of oil and wheat. Patel’s saying that since re-adjustments in the economy would be painful “there must be an appropriate safety net for the poor” should be heeded to. This is not the first that IFIs have painted a bleak picture of Pakistan’s economy in terms of achieving its economic goals. According to the WB’s and Asian Development Bank’s (ADB’s) projections, Pakistan’s economy will not be able to meet its target of 7.2 percent GDP growth rate in the year 2008.
The growth rate is predicted to linger around 6.5 percent in the current fiscal year owing to a number of factors. While oil prices remain high globally, the economy is marred by flawed economic policies at home. The current economic malaise can be traced back to the financial ‘wizardry’ of the government of ex-prime minister Shaukat Aziz who had claimed to have brought about a turnaround in the economy because of reforms. His government had boasted about breaking the begging bowl, informing the nation that his economic measures were taking us towards self-reliance. But that did not happen. Instead, a few months after the PML-Q government ended and a caretaker government took over to hold the general election, we found that the country’s economic outlook did not promise any progress. Rather, it looked bleak. The economic situation continues to deteriorate. Pakistan’s current account deficit has widened to $ 8.421 billion in the first eight months of the fiscal year 2007/8 to June, compared with $ 5.857 billion in the same period last year. This is because the oil import bills inflated and Pakistani exports did not grow and diversify. The growing inflation has resulted in an increase in the prices of food items. The State Bank of Pakistan (SBP) further tightened the monetary policy this year to reduce the growing inflation. To make things worse, the recent energy crisis has shaken the confidence of international and local investors. As a result, Pakistan’s credit rating and international borrowing has gone down. Turning a blind eye to the energy crisis has hit the economy hard.
While keeping in view the advice of the WB, the government will have to dispel the impression that Pakistan’s economy mostly runs in accordance with the dictates of the WB and International Monetary Fund (IMF), resulting in an increased level of poverty. For a start, the task before the economic policy makers at the moment is to restore investors’ confidence. A smooth political process and the availability of maximum energy input to the industrial sector will give the ailing economy the required impetus.