The recovering economy may get a temporary stimulus from the huge election spending by the government, political parties and candidates for national and provincial assemblies next year.
On the downside, inflation rate might accelerate by the middle of the next year and any lag in foreign exchange inflow may mount pressure on central bank reserves forcing the local currency, already cheap, to shed value.
While risks abound, improved industrial production and trade are expected to drive the GDP growth rate to 4.5 per cent in the year ahead from the current 3.7 per cent.
In an election year a government is more inclined to spend liberally to appease voters and candidates but less aggressive in revenue collection to avoid the ire of the country’s tax evading powerful lobbies.
The political transition phase in 2013 — as the current government is succeeded by the caretaker setup up that transfers the reigns of power to the next elected government — will affect key economic indicators. The fallout can be contained if the caretaker government takes corrective measures to reverse the growing monetisation of the rising fiscal deficit.
The disbursement of Coalition Support Fund will help shore up central bank reserves as the country settles its IMF payment obligations in
March next year. To a large extent, the stability of currency would also be tied to the government’s skill to manage the external sector.
Political obstacles despite high economic stakes may hinder policy adjustments necessary to put the country on a high growth trajectory.
The vulnerability of the economy may persist in the next year unless the next elected government acts swiftly to improve economic management through administrative and policy reforms.
“Higher growth expectations are based on the marginal expansion of the large-scale manufacturing, capital market boom, greater scope of regional trade, improved dollar inflows from the West after easing of tensions with the US, sustained growth in remittances and agriculture, besides the silent contribution by citizens struggling in the informal sector”, said an economist.
Corporate Pakistan is egging economic revival more on a political change through peaceful transfer of power to the next elected government. The business community, still adjusting to the transforming power structure, does did not bother to veil its distrust of the current leadership.
“We are cautiously optimistic. Corporate Pakistan is eagerly waiting for a change in political congregation”, Kamran Mirza, CEO Pakistan Business Council, a private sector think-tank commented when reached over telephone to share his outlook for the year ahead.
“We are not trying to look through the crystal ball but I am convinced that the country’s economic fortunes can boost if economic management improves and the required structural adjustments made”, he added.
Most other businessmen contacted for comments blamed the government for the underperforming economy, that, they argued, lacked vision to ride economic challenges, and instead perpetuated a culture of patronage and corruption.
“For the country to break out of the low growth cycle, the reluctant private investor has to be cultivated. That does not seem to be possible in 2013 as investors concerns might not get enough attention in an election year”, commented an analyst.
Investment has declined over the past two years from 13.1 per cent in 2010-11 to 12.5 per cent 2011-12. There are some reports suggesting that the trend has been arrested over the last few months.
“Economic activity in Pakistan, representing 15 per cent of regional GDP, continues to markedly lag outcomes elsewhere in the region, reflecting worsening security conditions, greater political uncertainty and a break down in policy implementation”, the executive
summary of a current World Bank report on South Asia stated.
The ordinary citizens aspire for a better future but their expectations are perhaps more realistic. They expect more of the same irrespective of the political party that assumes power after elections next year.
They did express some frustration as the democracy so far has not delivered much for them in way of more economic opportunities but did acknowledge PPP government’s efforts to reach out to the poorest of the poor through Benazir Income Support Programme. Despite an
economic environment defined by falling real family income, fewer economic opportunities, insufficient and inefficient public and social utilities condemning them to subsist on the margin, the common man dreads economic reforms.
To him, reforms means withdrawal of whatever little care he gets in form of subsidised services in public sector and job loss through
“People struggling to piece together a future for their families consider themselves at the receiving end with no choice but to make most of whatever little comes their way. They do not give up hope “, an NGO activist critical of the government commented.”Pakistan is too big and dangerous to be left alone. The idea of a failed Pakistan scares neighbours and international community. Despite challenges, they will extend help enough to keep the economy afloat”, commented a senior bureaucrat in an economic ministry.