New financial year to bring tougher challenges

Pakistan will start a new financial year next month with a tough target of reviving the economy.

The soaring budget deficit in the wake of the unprecedented rise in global oil prices alone promises to increase problems for the south Asian economy.

But there are a number of other challenges, including addressing ways of turning around falling growth rates, and translating the uplift to the benefit of ordinary people.

Meeting these challenges is easier said than done. For the moment, one big obstacle to achieving an economic uplift is the divisive nature of Pakistani politics.

In the past five months, the defeat of politicians loyal to President Pervez Musharraf has raised Pakistan's political atmosphere. Politicians loyal to Musharraf have been replaced by opponents who are key members of the new ruling alliance.

The tussle between the president and the ruling alliance members has taken its toll on the Karachi stock exchange, where equity investors have suffered major losses this year.

The fallout from political instability has also been felt in other ways. There has been a significant decline in new investments by foreign and Pakistani entrepreneurs in the country since the political upset took place in February.

If this trend continues, there is a chance that Pakistan's economic future would suffer badly. Stemming the tide of growing uncertainty is therefore vital to protecting the country's economic interests.

The new government must concentrate on three vital matters to lift economic prospects in a sustainable way.

First, tackling the political discord is vital to overcoming the widespread feeling of Pakistan being a country that is at war with itself. Political turmoil this year has demonstrated the cost of such a showdown for the future of the economy.

Even if there is political disagreement down the line, Pakistan's main political parties must strive to keep the politics detached from the economy. The benefit of successfully keeping such a divide in place would essentially be to provide a measure of comfort to existing and future investors, whose commitment to further investments would be central to Pakistan's economic future.

Gulf opportunities

Second, the government needs to examine opportunities to perk up the sentiment surrounding the economy. One untapped area is venturing out to the Middle East to attract investments from that region, where large oil revenues continue to flow in.

Pakistan could benefit much more from the oil boom in the Middle East, both in terms of attracting investments from that area and finding opportunities to export its own unemployed labourers.

In the early 1970s, the oil price boom was immediately followed by large numbers of Pakistanis heading in to the Middle East to take up a vast variety of jobs. Consequently, Pakistan benefited greatly with a significant rise in the remittances from its expatriate workers in the Middle East.

Finally, no amount of persuasion targeting foreign investors will work unless Pakistan begins tackling the issue faced by investors from the moment they land in the country.

The reality of a dilapidated tax collection environment is one of the most common complaints from businesspeople, especially those who pay taxes and recognise themselves among less than one per cent of the population who pay income tax.

Pakistan must also deal with the many gaps in the environment surrounding its provision of utilities such as electricity and gas to industrial investors, while improving the quality of the legal environment to protect the interests of such people.

- The writer is a journalist based in Pakistan.