SBP report: a timely warning

The annual report of the State Bank of Pakistan for the year 2003-04 released on Saturday has done well to warn the government of looming uncertainty on the economic front during the current year as a result mainly of skyrocketing oil prices, depleting water availability and the resultant galloping inflation. The worst hit by the sudden jump in the rate of inflation from the targeted five per cent for the year are the poorer sections earning a monthly income of Rs3,000 and less.

As it is, in the last couple of years the population living below the poverty line in the country is estimated to have increased by about three per cent to a total of 33 per cent. Now with the steep increase in the prices of food items and essentials in the last 12 months, the rate of inflation for these poor people is said to have shot up beyond 13-14 per cent against an overall inflation rate of 8.5 per cent.

This is happening at a time when the annual average growth rate even in the medium term does not seem to be going much beyond six per cent. Trickle-down effect of such growth rates stops much above the poverty line, making it inevitable for those living below the line remain in a perpetual state of impoverishment.

If what the SBP report fears would actually happen as a result of the continued water shortage and high international oil prices, one cannot rule out the possibility that the rate of growth this year would not even touch five per cent which in turn is likely to make the life of the poor even more miserable.

There is not much the government can do about the world oil price increases except to shift the burden onto the budget rather than to the consumer. There is also not much it can do to enhance water availability. But then this would certainly upset the fiscal balance which is already expected to come under pressure from the need to import wheat as water shortages would have adverse affect wheat and other Rabi crops this year.

The increase in the import bill would have an equally adverse impact on the trade balance. These two factors, plus the galloping rate of inflation, are sure to bring the exchange rate and the rate of interest under heavy pressure. This, in turn, will lead to increases in the cost of import on the one hand and dampen the prospect of investment on the other as a higher rate of interests would seriously discourage investors.

The increase in world oil prices poses another threat to the domestic economy in the shape of a decrease in world demand for exports from countries like Pakistan, especially of the textile items which fetch nearly 60 per cent of our export earnings. It will also affect the large-scale manufacturing sector and further widen the trade gap for the year and, at the same time, considerably reduce revenue collection as a result of declines in production activity.

Overall these will bring the budget under greater pressure, forcing the government to resort to deficit financing simply to be able to meet its essential obligations. And if the decision is not to slash the allocations for the development sector (which should be protected under all circumstances), the budgetary deficit would further increase. Which would upset the macroeconomic stability that the government had achieved over the last three years by keeping a tight leash on public spending.

It is the situation such as this that the real ability of the economic managers to keep things moving in the right direction is tested. It is, indeed, no mean achievement to have achieved a level of macroeconomic stability in a couple of years in a country which had remained perpetually on dole for almost fifty years. But then this was made largely possible by the significant fiscal room allowed in the aftermath of 9/11, by increasing export earnings with the help of expanded market accesses granted by rich countries as a reward for our role in the context of the global war against terrorism.

The challenge that the economic managers are facing at the moment is daunting. They are now being called upon to keep the rate of inflation, especially for the poorer sections, under control, not let the pressures on the budget adversely affect the public sector development plans for the year, but without upsetting the budgetary balance and, at the same time, encouraging domestic and foreign investment. Equally vital is the need to push up exports and pressing on with the reforms in the CBR so that we meet the revenue target for the year. This, indeed, is a tall order. But then, this is the real test of the abilities of the economic managers in these troubled times.

Making justice speedy

Delegates to a seminar held in Karachi the other day said that the government was implementing a three-year 'Access to Justice' programme with financial assistance worth $350 million from the Asian Development Bank. The programme has been in place for nearly two years and aims at facilitating legislative, judicial, police and administrative reforms to make dispensation of justice expeditious and affordable for the general public.

Three districts - Abbotabad, Multan and Karachi - where it has been applied have shown remarkable progress towards clearing the backlog of cases pending before the courts at various levels. This is good news, and if implemented across the board, the programme will help restore people's confidence in the judicial system, which has been in state of erosion over the years for a number of reasons.

An affordable, easily accessible and efficient judicial system will discourage many from resorting to the parallel justice system, prevalent especially in the rural hinterland, in the form of jirga or panchayat, which in many cases have been instruments of miscarriage of justice.

One hopes that the reform programme being pursued will also take into account the putting in abeyance of certain institutional reforms, such as the new police act and the local bodies act, which have only partially been implemented by the provinces. Although the separation of the police operations and investigations has been provided for under the police reforms, this remains to be implemented across the various tiers of the force.

The formation of public safety commissions at the federal, provincial and district levels, as provided for under the local bodies act, has also remained a half-done job. Overcrowded prisons is another pressing problem, owing mainly to the presence of a large number of under-trial prisoners among those serving jail terms. Moreover, provisions of higher remuneration and better working and living conditions for the police and the lower judiciary, as promised by the government time and again, still need to be implemented.

The physical look and feel of the police stations and courts also need to be improved. These are areas that must receive the priority they deserve if expeditious and cheap justice is to be made available to the people. The judicial reform programme must be an ongoing exercise and enforced across the country. Funds needed for the purpose should be made available by the government or sought from international donors.