HOWEVER dim the signs may be, the Economic Survey of Pakistan 2011-12 does offer hope for economic recovery. The economy has grown by 3.7 per cent from 2.4 per cent last year despite energy shortages, floods and difficult global conditions. Manufacturing and agriculture have shown some recovery, albeit slower than projected. Growth in services, however, remains stagnant. But if the government has again missed the growth target of 4.2 per cent, it is mainly because of its failure to address energy shortages that cost two per cent growth. Still, this somewhat positive trend can be sustained provided the government takes measures to improve economic governance and the energy sector. More worrying is the pattern that has emerged regarding the government’s inability to tackle chronic fiscal imbalance, which is likely to reach just under seven per cent. The government hasn’t been able to raise the tax-to-GDP ratio of less than 10 per cent, the lowest in the region. Nor has it done much to cut energy and other subsidies or restructure loss-making state-owned enterprises.

On the external side, too, it is faced with serious difficulties. While inflation has remained within the projected limits, the current account deficit has surged to 1.7 per cent of GDP, not least because of the soaring trade imbalance and drying up of foreign official and private capital inflows. Our external sector has been sustained only by surging remittances sent by overseas Pakistanis. Given the global financial crunch, it would be foolish to expect foreign investors to return to Pakistan — even though the survey neglects to include a chapter on the economic cost of the war on terror. Global markets were awash with liquidity when foreign investment in Pakistan surged to $8bn by 2007. The country’s creditors and lenders have already told Pakistan to not expect too much.

Some of our economic problems can be taken care of if the federal and provincial governments start working in unison. The new National Finance Commission award and the 18th Amendment have transferred a major chunk of financial resources as well as responsibilities to the provinces. Given that, it is unfair to blame Islamabad alone for the country’s economic troubles despite reduction in its share in tax revenues and the transfer of liabilities such as debt and subsidies to it. The provinces will have to share the blame equally unless they start taxing the untaxed and under-taxed sectors instead of spiking their non-development expenditure on the back of increased federal transfers. Until the provinces realise their obligations, the economy will continue to teeter on the brink.