Pak on the brink of massive economic crisis, says leading economic expert

July 22nd, 2008 - 12:43 pm ICT by ANI  

Washington, July 22 (ANI): A leading Pakistani economic expert has said that his countrys economy was today facing a serious risk of a full-fledged balance of payments crisis and domestic and external fiscal imbalances that had reached alarming proportions and show no signs of self-correction or correction through policy action.

Dr Meekal Aziz Ahmed, who served senior advisor to the IMF Executive Director dealing with South Asia and as senior economist with the Pakistan Planning Commission, has written in a review that inflation had accelerated to levels never seen before in the countrys history and it was set to rise further, devastating the fixed income groups and the poor.

He castigated the present day PPP-led coalition government of announcing a people-oriented budget which, according to him, would further deepen the economic crisis.

There has been criminal negligence behind the power crisis which has led to untold losses in domestic production and exports. Added to these disasters the country has a food crisis, an oil crisis, an emerging water crisis, not to mention a political crisis. There is agreement among economists, he notes, that Pakistan s short-term prospects are grim. With economic policies likely to remain broadly unchanged, the economy will continue to slide downward until the country runs out of its foreign exchange reserves. At the point of reserve exhaustion, Pakistan will not be able to pay for its imports or meet its debt service obligations. The country, in short, will be bankrupt, the Daily Times quoted Dr Ahmed as writing in a review of Pakistan economy.

Dr Ahmed pointed out that Pakistans present predicament did not happen overnight, but was the direct consequence of the governments short-sighted and misguided policies in the recent past, characterised by its single-minded obsession with producing high growth GDP rates, without consideration to the quality or sources of growth which have a crucial bearing on sustainability.

Such an economic strategy, largely consumption driven and fuelled by cheap credit, rather than being driven by the more desirable route of investment and exports, was, sooner or later, bound to run into resource constraints. Eventually demand would outstrip available capacity, macroeconomic imbalances would widen and inflation will start to turn upwards. The view that todays economic problems are the lagged consequence of past policies is neither conspiratorial nor does it amount to playing the blame game. There have been long lags between policy actions and policy outcomes and what the Pakistani economy is witnessing today are the lagged consequences of policy actions taken earlier, he said and added the chickens have come home to roost.

According to Dr Ahmed, the new government missed an excellent opportunity to demonstrate that it was taking charge of the rapidly worsening economic situation by failing to devise a bold fiscal strategy aimed at reducing aggregate demand pressures and starting the process of restoring macroeconomic stability. This could have been achieved through the implementation of a sound 2008-09 budget. A tight fiscal stance, desirable in its own right from a macroeconomic standpoint, would have reinforced the tight monetary policy stance, wrote Dr Ahmed.

He said that the awam dost (people oriented) budget that followed showed that the PPP-led government was not aware of the crisis towards which the country was hurtling. The budget was a major disappointment, being loose, abounding in exemptions and concessions and amnesty schemes, despite bitter experience from the past, he said.

He said: The poorly thought out plans to help the poor are likely to be ill-targeted, costly, and only make matters worse. The tax revenue target is fanciful and completely out of line with what the Federal Board of Revenue (FBR) has been able to achieve in the past six decades. (ANI)

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