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ECONOMIC REVIEW
Budget: Disturbing Indicators
by SHABBIR H. KAZMI
Budget: Disturbing Indicators
While there are growing apprehensions that the ruling junta may opt for politically motivated federal and provincial budgets, the ground realities don't support such adventurism. As has been stated repeatedly, Pakistan is suffering from two contentious problems -- budget deficit and trade deficit. Both the issues are outcome of not following good governance. Added to this is drying inflow of aid, grants and soft-term loans due to strangulated Pakistan-United States relationships. It is also feared that the government may agree to resume Nato supplies to please the United States. However, compromising Pakistan's position can upset domestic constituencies, already involved in energy related demonstrations. There are apprehensions that if these demonstrations, fully supported by opposition political parties, turn violent, the law and order situation can become really precarious and impair country's economy.
While forecasting the possible facets of Federal Budget for 2011-12 it is necessary to keep the ground realities in mind. The macro-economic framework presented to the Annual Plan Coordination Committee anticipates that foreign exchange reserves can decline to around US$11 billion by June end 2012. It also warns that the declining trend may continue during the next fiscal year and hit a low of US$8 billion by the end of 2012-13. This balance of payment projections have been prepared by Ministry of Finance on the basis of data provided by the State Bank of Pakistan and Planning Commission.
The projections highlight that a major source of dollar outflow from Pakistan is the rising oil import. Oil import bill is projected to swell to $16 billion during fiscal year 2011-12 and to $16.952 billion in 2012-13. Crude oil price was $92.7 per barrel during 2010-11 and it was projected to hover at $115 per barrel in Budget: Disturbing Indicators2011-12 and to come down to $114 in 2012-13. As against these projections oil prices increased to $130 and the country had to spend $2.1 billion additional foreign exchange on oil import. The other factor contributing to the increase in oil import bill was import of higher POL quantities due to shortage of gas. Though, efforts were made to contain oil import by running power plants at lower capacities, which led to closure of industrial units and hike in cost of production.
Rising debt servicing has been eating up a substantial portion of revenue collection; both local and international borrowing have gown considerably. According to the projections, external debt which was recorded at $60.401 billion at end 2010-11 will reach $66.844 billion by the end 2011-12. It will further increase to $68.930 billion by end 2012-13.
Current account deficit was projected at $1.180 billion, but the fresh estimates suggest that it will increase to $4.171 billion by end 2011-12 and swell to $5.346 billion during 2012-13. The key factor adding to current account deficit is growing trade deficit due to rising imports and stagnant/declining exports. Even record inflow of remittances is proving inadequate to bridge the gap.
Pakistan achieved record export of $25.356 billion during 2010-11 but there are growing fears that the country will miss the export target set for 2011-12. These apprehensions are based on decline in global cotton price by more than 25% but more importantly inability of the gas marketing companies to meet the gas requirement of textiles and clothing industry. The country also failed in exporting one million tons sugar but half of this has been already smuggled to the neighboring countries.
Imports were reported at $35.872 billion for the last fiscal year. Imports are projected to grow by 12% during the current fiscal year, but higher import of crude oil and POL products, urea, secondhand cars and cellular phone are expected to balloon imports.
Budget: Disturbing IndicatorsIn the financial account, direct investment in Pakistan was recorded at $2.101 billion last fiscal year. It has been projected to be around $1.738 billion during 2011-12 and $3.392 billion in 2012-13. The portfolio investment was $1.835 billion during the last fiscal year and it has been projected that it will decline to $892 million in 2011-12, but will improve to $1.940 billion in 2012-13. Worker's remittances were recorded at $11.201 billion during the fiscal year 2010-11 and these have been projected to increase to $13.169 billion during 2011-12 and to $14.105 billion in 2012-13.
The government has failed in containing budget deficit despite increase in overall tax collection. It is mainly because of lavish expenditure of the elected representatives and the ongoing war on terror now being fought within Pakistani borders. There is growing pressure on the ruling junta to pull Pakistan out of 'proxy US war' which has cost billions of dollars to Pakistan's economy but more importantly damaged country's social fabric. There is growing consensus that ensuring peace in Afghanistan is necessary for Pakistan's sovereignty but in a way Afghanistan should become a liability for Pakistan.
Some of the experts say that Pakistan is being compensated for its participation through Coalition Support Fund (CSF). However, there is growing censuses that not only these reimbursements are paltry but we care fighting a fruitless war. The time has come to allow Afghans to choose their own destiny. Some experts say that it has become almost impossible to remove militancy out of the blood of Afghans.
The time has come for all the political parties of Pakistan join their hands together to bring prosperity to Pakistan. During the budget speeches PML-N has been chanting anti regime slogans but hardly realizes its own responsibilities. The party rules Pakistan's largest province Punjab where 65% population of the country lives. It has billions of rupees at its disposal which it should have used in overcoming energy crisis rather than funding cabs, distributing laptop computers and 'sasti roti'.
People don't need charity, they need jobs. PML-N chief has threatened to join anti-load shedding demonstrations. However, he must keep in his mind that violent demonstration would cause more damage, rather than providing any respite. To conclude it may be enough to say that the federal government has limited options but an ostrich like approach or indulging in adventurism can cause more damage.

 
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