The year 2013 will go down in history as a year of extraordinary political achievements for Pakistan. For the first time in 66 years, the country managed to complete the process of democratic transition in the May general election.

However, now, the argumentative democratic people of Pakistan, who trust democracy to hold better chances of delivering a decent life and equitable economic opportunities, must be getting disoriented as the new band of rulers have so far proved to be even more out-of-touch with the people and their problems than their predecessors.

For them, the concluding year was harder than the year before as the kitchen budget hiked through the roof and transport expenses increased dramatically along with utility rates, while the sagging economy meant fewer jobs and a freeze in wage increase.

The last month of the year brought some relief as large scale manufacturing posted growth, inflation moderated somewhat, EU cleared GSP Plus, gas diverted from energy generation to industry and the prime minister announced to cement trade ties with India, independent of progress on the composite dialogue.

Otherwise, the concluding year did not prove to be exciting for Pakistan’s economy. The populist compulsions of election year forced the outgoing Raja government to postpone difficult decisions that the incoming Nawaz government was forced to take in haste, soon after assuming power.

Return to IMF

The return to IMF for budgetary support to forestall a balance of payment crisis was another difficult compulsion for the government. Despite the IMF’s suspicions on account of the history of its relationship with Pakistan where all but one of its programs was actually completed, the Nawaz government did succeed in striking a deal with the fund in September for $6.7 billion as Extended Fund Facility. The loan, however, came with stringent conditions and staggered disbursement was tied to progress on agreed benchmarks.

Corporate Pakistan heaved a sigh of relief at the deal as it trusted IMF’s resources, management and monitoring many times more than the local set of economic managers. For them, the deal was a surety that the government would not waver from the path of free market economy with minimum governmental interference.

Experts, however, believe that a more rigorous process of negotiations could have earned Pakistan a more flexible program of economic reform implementation.

Rise and fall in financial markets

The capital market that gauges business sentiments based on corporate annual results and future projections more than the macro economic performance of an economy was an exception. It climbed from strength to strength and gave record performance in terms of both capitalisation and returns. The KSE 100 index opened the year at 16,905 points and in the last week of December flirting over the 25,000 mark.

For the commodity market, however, it was a lacklustre year. Keeping with the global trend in the sector, the commodity market was bearish all through 2013. Be it cotton, wheat, rice, gold or other metals, the activity was on decline.

The currency market experienced bouts of volatility but generally the rupee was on the losing end. Government intervention towards the closing months reversed the slide but experts felt it might not be sustainable if the vulnerabilities of the external sector are not addressed on a long-term basis.

The dollar-rupee parity on Jan 1 was 1:97 which dipped to 1:110 in the open market in November but was talked up by Finance Minister Ishaq Dar to 1:106 in the third week of December. The rupee still lost as much as about eight per cent in value as people rushed to park their savings in dollars.

The weakness of the financial team in Islamabad was exposed as it backtracked on a decision directed to expand the tax net and improve documentation of the country’s under-reported economy.

The PML-N-led government has not been able to capitalise on the goodwill of its key constituency – the Pakistani business community – thus far as it found the government lacking in commitments it made prior to the general election.

The big business was particularly critical of the government’s sluggish movement on certain critical issues such as expansion of the tax net, restructuring of public sector enterprises, privatisation, sale of 3G license and improvement in trade relations with India where they see huge market potential.

The Nawaz government’s claims of a five per cent growth rate in the last quarter of 2013 have lacked statistical support. Experts who based their projections on dependable data said the country has yet to break out of the tardy three per cent growth trap and average economic expansion should be within the said band.

Rising inflation, increasing poverty

The rates of all utilities were revised upward more than once in the second half of the year, pushing up the cost of production and the cost of living significantly. After falling to record low in the first quarter of 2013 (close to eight per cent), inflation bounced back in the second half of the year and jumped by as much as five to six per cent in as many months.

The more critical is the composition of the price hike that was highest in necessary food items. The burden of the hike, therefore, was disproportionately borne by the most vulnerable segments of the Pakistani population at the lower rungs of the social scale.

Experts believe that the situation could have pushed about five million more Pakistanis bellow the poverty line when the poverty numbers are already scary. Multilateral bodies believe these numbers to be on the rise since 2008 to touch 37 per cent by 2012.

The balance of payment situation worsened during the year to assume the position of the gravest challenge facing Pakistan’s economy. With little let-up in foreign exchange inflows, the country lost $5 billion in loan repayments and import payments. It depleted reserves to dangerously low levels of little over $3 billion by the end of the year.

The fiscal gap forced the government to borrow liberally from the State Bank with total borrowing smashing through all barriers. The quantum of total public borrowing went in to trillions of rupees as reported in mid December. The public debt has mounted to very high levels. This was despite the meager release of funds for the public sector development program.

In contrast to about 25 per cent release of funds for development by this time of the financial year, the Nawaz government is reported to have released a miniscule four per cent of funds for development.

—By Afshan Subohi

Opinion

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