Fiscal situation: strained but not drained

Either the World Bank sees what avid followers of Pakistans economy don , or it is, in general, a very optimistic institution. Only this may help explain the Banks upbeat outlook as regards Pakistans fiscal consolidation in the report "Pakistan Economic Update 2011".
Despite voicing extensively the telltales of Pakistans economic miseries, the World Bank appears to have greater faith in the Finance Bill 2011-12, and announced measures for increasing revenue collection and expenditure control than many residing in the country do.
Its the fiscal problems which easily steal the show when it comes to highlighting the macroeconomic abyss Pakistan has been slumped into. The words of the World Bank, "revenue collection continues to be subpar and power sector subsidies remain a major drain on the budget," cut short the long story of why the federal budget is scoffed at by economic analysts near the beginning of every new fiscal year.
In the midst of the rather unflattering words on Pakistans fiscal situation, the World Bank highlights a seldom quoted ratio - Tax buoyancy. This is measured as the growth in tax revenues over the growth in GDP, and turns out to be low at 0.93 for Pakistan between 1980-2010. This further means that Pakistans tax revenues have been growing at a lower rate than GDP growth in the country.
To address the predicament of a relatively slower response of tax revenue growth to GDP, the Bank suggests a "continuous need for the government to introduce short-term discretionary measures as the government did recently in a bid to narrow the growing revenue gap".
Yet, the World Bank is generally hopeful for Pakistan. The recently announced measures for fiscal consolidation make the Bank believe that the IMF-supported SBA, the fate of which had been unclear since the past one year, is likely to be resumed, or perhaps, a new IMF programme may be chalked out.
That, combined with the World Banks statement in the report, "budget support from the World Bank remains dependent on establishing a satisfactory framework for economic stabilization and recovery" might make economic managers of the country give away a smile with thoughts of the worlds key institutions pleased with their announced measures.
How far the said measures will be implemented is anybodys guess. But, looking at the optimistic comments in the report, one can dare say that history is not something the forgiving World Bank goes by, especially when it comes to assessing the implementation of policy measures in Pakistan.