Sugarcane
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ISLAMABAD: The PPP-led government is engaged in a zero-sum game of completing its five-year term, ignoring the fact that the economic crisis will blow out of proportion by March 2013. And analysts are wondering why economic wizards are oblivious to this gathering storm.
If the government were to call any uncle or auntie this month, it can at least claim that it has slashed inflation to a five-year low at 6.53 percent (though this too is a fudged figure). But if the government leaves the office amid the crisis, it cant palm off this miracle since the people would ask what it has done to address the energy crisis, the inflationary spiral and the joblessness in the country.
By end-March 2013, when a caretaker set-up takes charge, economic indicators are likely to be the same as those inherited five years ago by this government: the inflationary pressures and the dwindling foreign currency reserves, owing to heavy payments to foreign lenders and outflows in general. Then, the budget deficit stood at nine percent of GDP on March and the possibility of the same occurring this fiscal year cannot be ruled out.
We dont think that the economic team has shown the true picture of the economy to their bosses but the latest warning from the IMF should be an eye-opener. The Washington-based financial institution has used the harshest language - though carefully - to convey its message, in order to avoid triggering the crisis that could follow such a statement by the fund, said analysts who scrutinise IMF-Pakistan relations.
According to the IMFs projection, headline inflation has decelerated recently but is likely to return to low double digits by the end of FY13.
While average inflation had peaked in the first five months of the last financial year and the base impact will lead to lower inflationary numbers in the same months of the ongoing fiscal year, economic experts as well as Finance Division wizards agree that inflation will rebound in the second half of the current fiscal year after the evaporation of the base impact and on the back of rising fuel prices.
The IMF has projected an estimated budget deficit at 6.4 percent of GDP as of June 2013 on the basis of existing information. However, noted economist Dr Ashfaque H Khan believes that the budget deficit would remain 8 percent of GDP in 2012-13 keeping in view the financial indiscipline of the previous 4 years.
Interestingly, this fiscal year will see three changes of government: the Yusuf Raza Gilani government, the Raja Pervez Ashraf government and finally, the interim government in the lead up to the elections. In such a scenario, expecting financial discipline is a far-fetched notion, commented analysts.
For the IMF, the real issue will surface when it will be pushed for funding by the caretaker set-up. The Fund has already projected that foreign reserves held by the central bank will dwindle to $7.3 billion by June-end from the existing level of $8.8 billion. It is going to be even more reluctant to extend financing when there are no political signatories to its conditionalities.
That said the next IMF programme is inevitable reality. The only issue is that of timing, given that Islamabad has to return around $3.4 billion to the Fund by the next fiscal year.
And, analysts predict, this new programme will feature all politically challenging conditions: reformed general sales tax, elimination of subsidies to public sector enterprises and directives to cut their losses (even when it means laying off employees) and restraints on provincial spending
If we run into a balance of payments crisis during or before the caretaker set-up, we dont have any choice other than the IMF, said another economist Dr Meekal Ahmed. No one else will help us out - neither China, nor Saudi Arabia nor that mysterious alliance called the Friends of Democratic Pakistan.
When the IMF extended finances to a previous PPP government, it made sure it got all political parties to endorse the loan-seeking plan publicly or through the letter of intent.
Expecting that the US will ask the IMF to go easy with lots of money and no adjustments and reforms is wishful thinking, said Ahmed.
Call Uncle Sam or auntie IMF; we
If the government were to call any uncle or auntie this month, it can at least claim that it has slashed inflation to a five-year low at 6.53 percent (though this too is a fudged figure). But if the government leaves the office amid the crisis, it cant palm off this miracle since the people would ask what it has done to address the energy crisis, the inflationary spiral and the joblessness in the country.
By end-March 2013, when a caretaker set-up takes charge, economic indicators are likely to be the same as those inherited five years ago by this government: the inflationary pressures and the dwindling foreign currency reserves, owing to heavy payments to foreign lenders and outflows in general. Then, the budget deficit stood at nine percent of GDP on March and the possibility of the same occurring this fiscal year cannot be ruled out.
We dont think that the economic team has shown the true picture of the economy to their bosses but the latest warning from the IMF should be an eye-opener. The Washington-based financial institution has used the harshest language - though carefully - to convey its message, in order to avoid triggering the crisis that could follow such a statement by the fund, said analysts who scrutinise IMF-Pakistan relations.
According to the IMFs projection, headline inflation has decelerated recently but is likely to return to low double digits by the end of FY13.
While average inflation had peaked in the first five months of the last financial year and the base impact will lead to lower inflationary numbers in the same months of the ongoing fiscal year, economic experts as well as Finance Division wizards agree that inflation will rebound in the second half of the current fiscal year after the evaporation of the base impact and on the back of rising fuel prices.
The IMF has projected an estimated budget deficit at 6.4 percent of GDP as of June 2013 on the basis of existing information. However, noted economist Dr Ashfaque H Khan believes that the budget deficit would remain 8 percent of GDP in 2012-13 keeping in view the financial indiscipline of the previous 4 years.
Interestingly, this fiscal year will see three changes of government: the Yusuf Raza Gilani government, the Raja Pervez Ashraf government and finally, the interim government in the lead up to the elections. In such a scenario, expecting financial discipline is a far-fetched notion, commented analysts.
For the IMF, the real issue will surface when it will be pushed for funding by the caretaker set-up. The Fund has already projected that foreign reserves held by the central bank will dwindle to $7.3 billion by June-end from the existing level of $8.8 billion. It is going to be even more reluctant to extend financing when there are no political signatories to its conditionalities.
That said the next IMF programme is inevitable reality. The only issue is that of timing, given that Islamabad has to return around $3.4 billion to the Fund by the next fiscal year.
And, analysts predict, this new programme will feature all politically challenging conditions: reformed general sales tax, elimination of subsidies to public sector enterprises and directives to cut their losses (even when it means laying off employees) and restraints on provincial spending
If we run into a balance of payments crisis during or before the caretaker set-up, we dont have any choice other than the IMF, said another economist Dr Meekal Ahmed. No one else will help us out - neither China, nor Saudi Arabia nor that mysterious alliance called the Friends of Democratic Pakistan.
When the IMF extended finances to a previous PPP government, it made sure it got all political parties to endorse the loan-seeking plan publicly or through the letter of intent.
Expecting that the US will ask the IMF to go easy with lots of money and no adjustments and reforms is wishful thinking, said Ahmed.
Call Uncle Sam or auntie IMF; we
