On country s 65th Independence Day

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The Prime Minister in his speech on the nation s 65th Independence Day made a number of claims with respect to his government s performance in the field of economics and politics. On the economic side, Prime Minister Gilani noted the success of the 7th National Finance Commission (NFC) Award that accounts for an increase in the financial resources to the provinces, an addition of 3000 MW to the national grid during the past three years, a rise in foreign exchange reserves to unprecedented levels (8 billion dollars) due to a rise in remittance income.

His critics would no doubt challenge all his claims. First and foremost, a number of economists argue that even though the 7th NFC Award is a landmark achievement, yet it has implied an additional 70. 6 billion rupees to the provinces in the current fiscal year - money that the federal government desperately requires to meet its own rising debt obligations, reflecting the failure of the government to meet either its revenue targets for 2010-11 as contained in the 2011-12 budget documents (a shortfall of 38 billion rupees was revealed), or external assistance inflow (a shortfall of around 0. 9 billion dollars).

The enhancement in generational capacity becomes meaningless, as the public has learnt to its cost, if existing capacity is not fully operational. For the third year running, the high inter-circular debt, fluctuating between 100 to over 400 billion rupees, has rendered several energy sub-sectors unable to produce at maximum capacity. The result is an energy shortfall leading to loadshedding in excess of 10 to 16 hours at various locations throughout the country. And finally while remittance income has risen markedly in recent months, yet economists are loath to give credit to government for this rise.

While one would be forced to accept the fact that the very low interest rates prevailing in the West, notably in the US and Europe, no doubt did lead to a rise in remittance income yet the fact remains that the strong action taken by Interior Minister Rehman Malik against those accused of the hundi/hawala system as well as some appropriate steps taken by the State Bank of Pakistan and the commercial banks did encourage official remittance inflows.

But what did the Prime Minister say with respect to rising inflation leading to a shrinking value of each rupee earned, everyone is asking? The Prime Minister cognisant of his people s concern stated that the government is formulating a strategy with the help of the provinces to decrease the price hike. However, he proudly added that the increase in subsidies as well as government salaries and pensions were policies focused on ensuring that income kept pace with the price rise. This is an economic fallacy as higher wages lead to wage-push inflation while higher subsidies financed through higher budget deficits are highly inflationary.

The prime minister needs to be aware that the Finance Ministry is working at odds with the SBP on this count. The SBP by keeping interest rates high is attempting to mop up excess liquidity and thereby check inflation while the Ministry of Finance has increased domestic borrowing to finance its ever-rising budget deficit that is fuelling rise in prices. Thus inflation is not solely about policing price rises designed to check profiteering but about macroeconomic policies that are the domain of the federal government.

Prime Minister Gilani s rhetoric on the PPP government following the policy of reconciliation, as well as the sacrifices and gains of the armed forces, was nothing new. Many have begun to view the policy of reconciliation as neutralising all forces that may have challenged the PPP-led minority government and its success is measured by the obvious fact that this is the longest sitting democratically elected government at a time when the Presidency is not occupied by a man in khaki. The political cost of reconciliation however is rising as coalition partners demands are coming into conflict with the wishes of PPP s own cadres as reflected in the case of the local government versus commissionerate system in Sindh.

Gilani s speech focused on relations with China, Saudi Arabia and Turkey. He did mention the US and indirectly acknowledged tensions with our largest aid donor in the economic as well as military field by stating that relations with the US were vital for Pakistan and that we are ever ready for co-operation with our friends but we will not accept the hegemony of anybody.

Here, analysts argue, is an oblique reference to Pakistan s resistance to US insistence on lifting travel restrictions on its diplomats/operatives. This maybe a difficult sell given that the US has yet to execute a commitment made by many a US legislator who had threatened and cajoled the Pakistani government/establishment to release Raymond Davis to try the operative in the US, as well as the US refusal to apologise for violating Pakistan s air space and territory in the raid to kill Osama bin Laden.

 

 

Courtesy: Business Recorder


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