Wednesday, January 12, 2011

Free falling Economy, Political Chaos; Pakistan's future in See-Saw

John Kenneth Galbraith once said "Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable." 

Karachi Station
Current political establishment in Pakistan is going through the same state. Country is in the midest of hyperinflation, acute shortage of essential commodities like gas, fuel, electricity etc. Rising extremism - which extends it tentacles from the Af-Pak border to the rest of the country - is already questioning the integrity of the nation, violence in the streets, recent assassination of Punjab Governor Taseer - A major moderate voice in Pakistani society, an economy in free fall etc are threatening the already fragile government in Islamabad.

Recently IMF extended its stand by arrangement with Pakistan, which was to be completed by December 2010, by nine months. Now the arrangement will last till September this year. However IMF may not be happy with the continuation of large amount of government subsidies; recently Pakistan government has withdrawn the increase in petroleum prices after the intence political pressure on it.

But according the IMF press release "The extension will provide time to the Pakistani authorities to complete the reform of the General Sales Tax, implement measures to correct the course of fiscal policy, and amend the legislative framework for the financial sector." But this may not be possible for the government to go on with reforms as it is threatening the existence of government itself. It is yet to see how World Bank, ADB, US, Japan, EU and other donor nations will react if Pakistan fails to implement reforms.Pakistan's trade deficit already widened to $1.62bn for December as compared to last December's $1.34bn.

Bird eye view of Islamabad
Mean while the recent floods displaced around 20mn people, where 6mn people are in immediate need of help. But the donor nations are also hit by the financial crisis.

According to the The Telegraph "Last year, recession-hit donors gave Afghanistan just two-thirds of the aid the United Nations had appealed for, wary about misappropriation of funds. Yemen is also yet to receive funds committed by partners in the West and Middle East because of concerns over corruption. "Either we can let corrupt governments go under and thus help the terrorists," a US State Department source told The Daily Telegraph, "or we can keep letting them be corrupt and thus help the terrorists. It's a horrible choice.""

Pakistan's external debt now stands at £35.5 billion and according to the estimates this may increase to over £47 billion in 2015. But despite all these problems, there is no reduction in arms race. According to Peter Lavoy, the US National Intelligence Officer for South Asia, said in a 2008 diplomatic briefing: "Despite impending economic catastrophe, Pakistan is producing nuclear weapons at a faster rate than any other country in the world".

It is really a harsh time for Pakistan, but things are not fully gone out of their hand. Instead of looking in to the individual gains, political parties of Pakistan have to work together for creating a better economic environment. Instead of moving to the streets for fighting against the government and not existing enemies, religious leader have to work with government and other international agencies like UN, US Aid etc for the benefit of flood and earth quake victims and creating an investment friendly atmosphere in the country.Last but not the least, Pakistani political and military establishment have to realise that India is not their enemy, in fact a stable Pakistan good for India's interest also. Indian and Pakistan can attain a lot together by trade and commerce instead of fighting...


1 comment:

  1. These days, a revolutionary spirit has permeated the Arab world, giving illusionary hope and ideas to different pseudo-intellectuals in Pakistan. But in Pakistan the real problem is not of bread and butter but of terrorism and extremism plaguing the economy and polity. The current government has inherited this baggage along with an empty state treasury from its predecessors. Despite that, the country has unprecedented reserves of $ 17 billion, stock exchange index points that are around 12,500 and foreign remittances that are above $ 10 billion. Revenue generation and the fiscal deficit are intertwined issues but, with mutual consensus, revenue generation can be increased provided the government is allowed to do so by bringing tax reforms to bring down the fiscal deficit. In this regard, the provinces with their increased financial and administrative rights (gained through the 18th Amendment) can play a pivotal role by reducing their expenditures and increasing revenue generation. Thus, the onus should not fall on the federal government only. But above all, stable law and order conditions are required for this. Therefore, to face this challenge courageously should be the government’s priority. Once this challenge is met, the attached strings of the economy and stable society will be synchronized.