IN spite of high crop prices promising an improved outlook for agriculture, impacting positively on GDP growth, 2011 may prove to be yet another difficult year for the Gilani government in case of lukewarm support of foreign donors.

That will restrict its capacity to address multiple economic challenges, a dangerous preposition for a country virtually at war against militants.

Given the current domestic and international environment, the economy is likely to gravitate towards agriculture in 2011. The rural economy spurred by high crop prices may shore up the GDP growth rates, estimated at two per cent higher for the next fiscal year. Increased farm incomes are expected to enhance the countryside’s appetite for industrial goods. .

But the better agriculture performance, however, cannot possibly console the angry, noisy and more visible urban population pushed to the edge by galloping inflation, rising unemployment, receding investment and the service sector hit by a lagging economy.

The transfer of additional Rs300 billion to the agriculture sector during the current fiscal on account of better unit price of agriculture produce and direct flood compensation to 1.6 million affected families at the rate of one hundred thousands rupees each will create a sense of wellbeing in the countryside. It will generate demand for consumer items including consumer durables such as fans, TVs, motorcycles, fridge etc.

Most businessmen believe that multinational consumer giants with production base outside Pakistan will be the key beneficiaries as the local manufacturing is too preoccupied with its issues of survival to capitalise optimally on rising rural demand.

“It is sad, indeed, that we are not in a position to make the most of a welcome change in domestic market because our manufacturing is not geared up to cater to new demands originating from rural population”, a businessman confessed.

“Had the industry been strong the demand spike could have generated highly valuable multiplier effect, lifting the economy to a higher plank because of forward and backward linkages of dynamic manufacturing sector”, he added.

In the absence of policy guidelines and support, prospects of peasant families capitalising on the opportunity to break out of poverty trap by using extra income are not bright. “For the agriculture to attain sustainable growth it is necessary to divert a portion of current income towards investment in production and technology for better crop yields and improved post-harvest processes to avoid wastages and reduce vulnerability and dependence on nature”, an expert with an eye on weather cycles in Pakistan said.

“The mismanagement of additional fiscal space available to rural households could limit the benefits of a lifetime opportunity”, he added.

But Nadeem ul Haq, Deputy Chairman Planning Commission did not sound hopeful for the future. “We have huge fiscal issue. The stabilisation will continue to be the thrust of the government economic policy”.

The prospect of meaningful improvement in fiscal deficit is hard to contemplate as resource mobilisation efforts are unlikely to yield dramatic results and the government might not be able to apply brakes on spending. The sectors covered by tax net will continue to under perform while the growing agriculture sector falls out of the tax net. The public exchequer may, therefore, not be able to claim a share from increasing agriculture GDP to improve tax-to-GDP ratio.

It is too early to comment on dividends of changes in resource sharing between the federation and provinces. A better delivery of social services may not materialise immediately.

The declining government capacity to provide relief to people in the form of subsidised social and physical utilities (health, education, water, power and gas) will make key infrastructure facilities costlier and translate into falling living standards for middle classes and the low income groups.

The IMF’s nine-month breather may reduce tension between the lender and the borrower, but the Fund conditionalities for loan disbursement will keep the country’s economic team on its toes, peddling stabilisation programme when it has failed to yield results so far.

Any hope of prudent resource management by the PPP government would be misplaced as it struggles to wade through troubled political environment. The politically motivated move to absorb unemployed and sacked employees in public entities will further deteriorate the financial health of all such corporations leading to decline in labour productivity and financial viability of these outfits.

It would be naĂŻve to understate the burden of ongoing war on public exchequer. Besides increased cost of intensive security cover all over the country, the military operations in Northern Pakistan are expensive. As the final success is not in sight as yet, the guardians in Khaki are said to be mobilising resources for the next offensive against rogue elements.

The rediscovery of democratic Pakistan, eyeing a vast pool of idle or under-utilised capacity and natural resources and the inherent resilience to move on despite worst odds along with enviable profits that many multinational firms raked in troubled nation is making global investors reassess the country as destination of investment. This has not increased direct foreign investment but portfolio investment is up dramatically and the capital market has somewhat recovered. The footloose portfolio investment is not dependable but if interest persists, the trend could continue in 2011.

The leaders of industry were critical of the policies that they termed suicidal. They see improvement only if the government decides to focus on economic growth. The businessmen of Karachi were diplomatic but those in Punjab were openly sharing their deep concerns.

“I am an optimist. The situation will improve if we sincerely try to improve it,” Kader Jaffer, a business tycoon in Karachi told Dawn.

“The government needs to take a U-turn and focus on growth. You improve business environment and we will show you results within months. If, however, the government fails to respond to demands of industry I see little hope ahead”, Gohar Eijaz, Chairman All Pakistan Textile Mills Association told Dawn over telephone from Lahore. “You shut down gas and power, make credit expensive, put tax hounds after us and then expect us to perform. I challenge anyone anywhere to manage industry in this situation. It is simply not possible”, he added.

Eizaz Sheikh, acting chairman of All Pakistan Cement Manufacturers Association expressed his apprehensions for the future in strong words. “It is extremely frustrating. I see deep dark tunnel ahead. The disappointment is not just with the current band of rulers but I find those in waiting totally devoid of an economic vision”, he told Dawn over telephone from Lahore.

Political acumen is an asset but political governments need public support to survive.

The rising population of jobless youth, families frustrated by rising inflation hitting the roof while incomes stagnate; desperate business class crying hoarse at declining margins and hostile environment, they all can ignite severe anti government sentiments, leading back to dangerous cycle of political instability that a country in the midst of a virtual war can ill-afford.