Déjà vu! Thats what one experiences when summing up the economic occurrences of the calendar year people bid farewell to two days ago. What else can be said when the economic woes from the previous years were merely reflected again in 2010, alas, without much progress on any front.
The year began and ended on the same note - strike calls on the first and last day of 2010, which brought business and industrial activity in the country to a near halt.
With the social environment engulfed by such security threats and a less-than-desirable law and order situation, it was not very surprising to see dwindling foreign direct investment in the country. The total FDI in the first 11 months of CY08 was close to $10 billion; in the same period of CY10, this number had declined to nearly $4 billion.
Besides the obvious, FDIs also fell because the investors favourite of the previous years, the service-based telecom and banking sectors, are largely saturated, and investment opportunities in the real sector need to be generated.
How that will be brought about is a big question, especially for a government which has been having a hard time dealing with its loss-making public sector entities (PSEs). The PSEs, which cost the national exchequer roughly Rs300 billion every year due to poor management, rent-seeking elements and over staffing issues, were largely left on their own.
Much had been said about the issue, but much less was done. In fact, in the Federal budget 2010-11, no amount was put under privatisation proceeds, revealing a lot about the governments plans in that arena.
And in the background of the inept performance of the PSEs came the news that the fiscal deficit for FY11 may go up to as much as 7.5 percent. It was around 3.3 percent in FY10. With government borrowing from the central bank climbing up to Rs 328 billion by mid December 2010, and the heavy sales of short-term T-bills of around Rs 99 billion in the last auction, interest expense on the government is also bound to go up in the days to come.
To add to the ado, the implementation of power-sector reforms was slow, thanks to the huge outcry from the public, and, further, a decline in subsidies is nowhere on the horizon.
The revenue side didn offer respite either. Tax revenues are likely to decline by 5 percent from what had been targeted for FY11, while not much was done in 2010 about broadening the tax base, and the implementation of the RGST has also been delayed.
Dr Hafeez Pasha warned of risks of hyperinflation in case of a failure of the implementation of RGST, and the government having to resort to printing more notes to meet the burgeoning fiscal deficit. Even though the central bank is jacking up interest rates in anticipation of a gradually brewing inflationary environment, the lack of fiscal discipline is acting as quite a dampener to its efforts.
When all else was blue, the one area that had been a tad better in 2010 is the current account. At the back of remittances, CSF payments, and rising cotton and rice prices, the current account deficit has been declining for the past few quarters. But before cheering for the external account, the country managers need to be wary of the rising oil price outlook, which signals a hefty import bill in the coming months.
Having mentioned the myriad of tribulations the economy is ridden with, one cannot help but recall that similar concerns had been troubling the economy in the last few years as well, and hence the analogy with a déjà vu at the beginning of this note.
Rather than the blame-games, mud-slinging, uncensored cursing and constant catfights that politicians indulge in, it will be most beneficial if theyd take charge of the highlighted issues and prevent further economic deterioration.
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