Business | Opinion
Government dithers as economy heads for downturn
This week's sharp fall in rupee only illustrates the continuing challenges faced by Pakistan as the country's economy goes through one difficult phase after another.
- By Farhan Bokhari, Special to Gulf News
- Published: 00:15 May 21, 2008
This week's sharp fall in rupee only illustrates the continuing challenges faced by Pakistan as the country's economy goes through one difficult phase after another.
The rupee has been under pressure since the beginning of this year as Pakistan has come under pressure to meet the sharply rising value of oil imported to the country.
The rising cost of oil has raised the demand for foreign currency to meet such obligations. Rising inflation as well as a widening trade and current account deficit have not helped improved this situation.
And yet, one of the most striking features of this situation is the conduct of Pakistan's mainstream politicians.
Nawaz Sharif, the former prime minister who considers himself the 'guru' of successful policies to improve business confidence, has recently parted ways with the government over the issue of restoring judges who were dismissed by president Pervez Musharraf.
Prime Minister Yousuf Raza Gilani, an agriculturist by profession, is currently in Egypt, hobnobbing with the high and mighty at the World Economic Forum.
To date, the new prime minister has neither taken the initiative to interact with some of the key figures across the business scene, nor has he spent time to put together a credible plan for economic reforms.
In his three months as PM, all Gilani has done is taken some measures, such as ordering a restoration of trade and student unions, and oversee a rise in the price of wheat given to farmers, at a margin less than international rates for wheat.
To make matters worse, the government's failure to crack down on hoarding of wheat has essentially meant that the price of wheat in parts of Pakistan has risen by more than 45 per cent since the harvest began just last month.
The emerging picture once again raises a very familiar question: What should be done to improve the outlook for the economy? There are some realities tied to economic fundamentals that need to be acknowledged.
Pakistan is primarily an agricultural country. Any successful policy to begin turning around the country's economic fate must be tied to lifting the prospects for the agriculture sector.
This not only includes offering the right kinds of returns to farmers for the main crops; more importantly, this must also include making certain that the incentives are indeed translated into real life in a way that has not been achieved before.
Industry
Meanwhile, the government must also help with a credible process to revitalise the country's industry, which is otherwise lying in a dormant state.
In the short run, this would include looking at a range of incentives that could realistically be given to jump start the economy.
Pakistan's industry faces a host of issues ranging from mounting costs of inputs - most notably energy costs - to its failure to market products around the world.
In the short run, the government could help by reconsidering taxes already slapped on industry. Making more people pay their dues at lower rates rather than making some pay their dues at significantly higher tax rates, may well be the way forward.
The mother of most economic evils in Pakistan must be the dilapidated tax collection system, where just below one per cent of the country's population of 165 million pays tax.
It is an inequitable system where any economy cannot be realistically expected to improve its performance in the long run. Certainly, faced with ever rising fiscal deficits, no government can meet its economic obligations.
The writer is a journalist based in Pakistan.
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