Bite the bullet

THE new government finds itself in an extremely stressful situation so far as economic management of the country is concerned. In a press briefing on 9th April, 2008, Finance Minister Ishaq Dar revealed in detail how the previous government had fed the nation on deception by fudging the figures and fixing unrealisable targets to paint a rosy picture of the economy. The Shaukat Aziz government, he claimed, had intentionally presented underestimated figures in the last budget to show good performance to cheat the masses and get votes in the February 18 elections. Most messy was the fiscal position of the country, which was almost out of control and cast its dark shadow over other areas of the economy. Revenue collection till March, 2008 had shown a shortfall of Rs 33.5 billion and was expected to miss the target by Rs 35 billion during 2007-08. Budget expenditure overruns amounted to Rs 522 billion which the government needs to arrange in the next two and a half months to maintain the level of fiscal deficit at six percent of GDP during the current fiscal year as against the target of four percent. If the needed measures were not taken, the fiscal deficit could rise to 9.5 percent of GDP, which would be “almost unmanageable”. Largest portion of the budget overrun was because of the Rs 138 billion subsidy on petroleum products and Rs 70 billion on account of non-payment to Wapda, for which no budgetary provision was made. An additional expenditure of Rs 45 billion was incurred on importing wheat and there was no budgetary provision for that either. Even the amount of debt servicing which could have been easily accounted for in the beginning of the year was grossly underestimated. Current account deficit of the country had reached $8.5 billion by March, 2008 and if corrective measures were not taken, it could go upto $10 billion by June, 2008, and foreign exchange reserves of the country could drop to the level of only 4.3 months of imports. The previous government had also added $5 billion to the country’s external debt from 1999 to 2007. The target of 7.2 percent growth in GDP was also not attainable. Agriculture was estimated to show a growth rate of 3.8 percent as against the target of five percent while LSM was expected to grow by 7.5 percent as against the target of 8.8 percent.
Manufacturing and other sectors were also expected to show lower growth rates with the result that overall growth rate of the economy during 2007-08 would not exceed 6.0 percent. The previous government borrowed massively from the State Bank that gave new heights to price hike and made the lives of the ordinary people miserable. As against the target of 6.5 percent, inflation during 2007-08 was estimated to accelerate to 10.0 percent. Dar added that the cabinet had decided to take the matter of fudged budgetary projections and other wrong decisions of the previous government to the Parliament to fix responsibility and hold them accountable for creating fiscal crisis and passing on the buck to the elected government. A committee of the House will be formed to summon anybody needed for questioning in this regard. After claiming that the economy was in tatters, Dar asserted that the new government was fully cognisant of the challenges ahead and committed to turning the economy around. It would not shy away from taking painful decisions that were bound to be unpopular and had approved an emergency rescue programme for bringing Pakistan out of the financial crisis. The new government had acquired a $300 million oil facility from Saudi Arabia that will be used to lower the fiscal deficit. It hopes to secure another $2.5 billion to finance the widening gap in the current account and fiscal deficit as well as to maintain a reasonable level of foreign exchange reserves. The PSDP had to be cut to cope with the growing financial difficulties. The new government, according to Ishaq Dar, would have to take harsh measures over the next 75 days, including increase in oil prices and rationalisation of taxes to put the economy on right track.



Alliances and rivalries

THE India-Africa economic summit that has just ended in Delhi could be momentous for both sides. India wants access to Africa’s markets and its wealth of raw materials. From Africa’s point of view, India offers an invaluable third alternative to its two existing major business partners, the West and China, as well as a source of major investment, technology and aid. The doorway for both stands wide open — and already there are results. Even before the summit, India signaled its intention to be more focused on Africa, announcing a 60-percent rise in its aid to the continent in the new financial year. It was particularly interesting at the end of the summit to hear Indian Prime Minister Manmohan Singh state that India is “not in a race with China or any other country in engaging Africa” — interesting because that is exactly how everyone else sees the summit. He has, in fact, been visibly interested in replicating China’s growing trade ties with Africa. Last autumn he went awooing with visits to Nigeria and South Africa, a tour that followed an earlier similar African charm offensive by Chinese President Hu Jintao. As for the summit itself, it was a carbon copy of the China-Africa summit in Beijing two years ago, except that the Chinese managed to entice over 40 African heads of state and ministers to the Chinese capital; the Delhi event involved heads of state and ministers from 14 African countries. Moreover, the figures show how far India lags behind: India-Africa trade last year was worth some $20 billion, compared to $55 billion for China-Africa trade.
It is encouraging that India does not see itself as a rival to China. Commercial competition, such as between US and EU is fine. It is good for the consumer, in this case Africa, and is prevented by ties of friendship from degenerating into something more serious. Nonetheless, it can happen. Many a war has been born in commercial conflict. By coincidence, while the Indians were feting the African guests, Pakistani President Pervez Musharraf was heading for a six-day visit to China to boost economic and political ties with his neighbor. Against the background both of the continuing battle against Al-Qaeda and Pakistan’s recent political crisis, much has been said about Pakistan’s relationship with the US. Little is said about that with China, which is not only growing by leaps and bounds, it is likely to prove more enduring than that with the US. It suits both. China, which wants access to the Indian ocean, is redeveloping the Arabian Sea port of Gwadar, is building new roads across the joint boarder (which will make Pakistan a major entrepot center for Chinese exports), and there is a growing military cooperation: A joint jet fighter project is under way and the Chinese are meanwhile building four Pakistani naval frigates. Economic rivalry between India and China and a strengthening alliance between Pakistan and China could in the wrong circumstances have disastrous consequences. It is in everyone’s interest that they do not.

—Arab News