THE State Bank of Pakistan’s annual review of the state of the economy during the last fiscal year underscores the same risks and solutions as highlighted in the SBP’s previous reports and monetary policy statements. Given the fact that no fundamental policy changes have been made over the last several years to implement the much-needed fiscal, governance and power sector reforms to “lift economic growth”, the review was not expected to be any different. It more or less sums up the performance of the economy, though not as comprehensively as many would have liked, without being too harsh on the government. It does leave us guessing about issues such as plans to apply for a new IMF loan to ward off another balance-of-payments crisis. It also does not have a clear-cut position on commercial banks still being hesitant to lend money to private businesses to lift investment and growth. Perhaps, the SBP doesn’t want to spread panic in the market and bring the weakening exchange rate under further pressure.

What it does tell us is that the government will again miss almost all its budget targets although the economy will grow at the same rate (3.7 per cent) during the current fiscal at which it had expanded last year. The fiscal deficit will not be as large as it was last year (8.5 per cent of GDP). However, it will be large enough (six to seven per cent) to force the government to continue to soak up most credit from the banking sector at the expense of private investment and growth. Though the warning of the fiscal deficit pushing the country into a debt trap is a little premature, the deficit remains a major factor in blocking early recovery. Inflationary pressures persist in spite of declining prices over the last several months. The current account deficit will be below one per cent of GDP. Nevertheless, its financing will be a problem unless the government successfully sells 3G telecom licences and receives the remaining PTCL privatisation proceeds from Etisalat. Indeed, the solutions to our persisting economic troubles lie in initiating fiscal and governance reforms, restructuring public-sector entities and investing in economic and social infrastructure as suggested by the bank time and again.

With the incumbent government completing its term in power in the next few weeks, it is impractical to expect it to implement the required reforms that it failed to carry out in the last five years because of political problems and deteriorating security conditions. But the next government coming into power after the elections will not have the leeway to delay them.