The FY10 report card disappoints

Exactly 365 days ago, the countrys economic challenges appeared tough but manageable, with hopes peeking on and off from the veil of gloom cast in the crisis of 2008.
Inflationary pressures were gradually losing pace, creating a mirage that benchmark interest rates would be cut by the end of the ongoing fiscal year.
There were expectations, though only in slavishly optimistic corners, that energy shortage would ease after the promised deadline of December 2009.
FoDP hopefuls were beaming in anticipation of fresh foreign liquidity. Global economy was also showing signs of recovery, enabling fiscal managers to chalk out plans to sell sovereign debt papers in international bond market.
A slow but steady recovery in the world economy also generated hopes that Pakistans exports would pick up. And, though wary of Pakistans perpetual trait of political uncertainty, some from the economics establishment had pinned their hopes on the new breed of economic managers, including former Finance Minster Shaukat Tarin and former SBP governor Salim Raza, amongst others.
But compare then and now, and the picture appears completely upside down; as all expectations have come full circle to the starting point in 2008.
Inflationary pressures are ticking up again, thanks to higher power tariffs, burgeoning fiscal financing and ceasing of the high base effect that had kept inflation relatively tamer in FY10. Most senior economists, now see interest rates unchanged at present levels, if not increasing over the next few quarters.
Bond prices have already started incorporating these developments with yields on the benchmark government paper rising by 20 basis points in the last three months.
Energy shortage is here to stay - despite the setting up of controversial rental power plants - at least until the government wipes off circular debt, completely phases out energy subsidies and resolves infrastructural issues in the power system.
Hopes of FoDP inflows have, by and large, turned forlorn, even in quarters, which had directly received the pledge commitments from the forum.
"The question is does the so-called Friends of Pakistan set of countries.really deliver and provide the resources, because all the resources needed are not supposed to come from the IMF," IMFs Managing Director Dominique Strauss-Kahn inquired with concern earlier this week.
Global economy is still reeling from debt issues, which means chances of high risk bond issues of failed states such as Pakistan look dim. If economic mangers are still able to pull the deal off, it would likely be a costly one.
And while the weather turned stormy again, the crew of the boat got changed at various levels leaving major institutions headless for considerable periods. Tarins office was filled by Hafeez Shaikh after 4 weeks, Razas is still being occupied by an acting governor, while that of their counterpart in SECP lies vacant to date.
Now, with the onset of a new year, one can only pray that another 365 days on, the view will be one of improvement. From what it seems, the task at hand isn that easy, but it doesn hurt to keep your fingers crossed.

============================================

Then and Now

============================================

                     30-Jun-10     30-Jun-09

============================================

PKR-USD                 85.51          81.46

PKR-EUR                   105            115

FX Reserve ($bn)        15.78          11.84

KSE-100                 9,122          7,162

T-Bills 12M (%)         12.38          12.09

KIBOR 6M (%)            12.37          12.76

============================================

Sources: SBP & BR Research