Storm clouds on the horizon: Political turmoil taking its toll on economy

[Naveed Yaseen]

By Sajid Chaudhry
ISLAMABAD: Countrywide agitation sparked after the Supreme Courts decision on disqualification of Sharif Brothers and forthcoming long march and sit-in in front of parliament house for restoration of sacked judiciary may result in further lowering of growth targets, a senior official told Daily Times.

Gross Domestic Product (GDP) growth target was fixed at 5 percent at the time of the announcement of the budget, however, this target had been lowered to 3.5 percent and during the recent talks with International Monetary Fund authorities at Dubai, this target has further been lowered to 2.5 percent for 2008-09. Agitation sparked after the Supreme Courts decision and imposition of Governor rule in Punjab.

The losses in terms of tax revenues and other federal and provincial levies have been estimated at around Rs 3 billion per day and continuation of these protests and blockade of national highways would have negative impact on economy, added the official.

All big and small markets and business centres have been facing closure in federal capital as well as in other cities of the Punjab.

FBR collection target was fixed at Rs 1.250 trillion in budget but it was increased to Rs 1.360 trillion as per IMF demand. However, this target has been again revised downwards to Rs 1.3 trillion for 2008-09. Administrative breakdown and businesses closure in major cities of the country would make it difficult for the tax authorities to achieve even this downward revised target, the official said. Blockade of national highways for goods transport and inter province public transport linking Punjab with NWFP have badly impacted economic activity in this part of the country.

Exports growth was estimated at 16 percent during current fiscal year at the start of this fiscal year and now exports growth has been estimated at negative 5.5 percent according to second-time revised targets.

Sayem Ali, Economist at Standard Chartered Bank (Pakistan) Limited, observed that the stock market have reacted nervously to the verdict: the KSE 100 index fell by 294 points (-5 percent), wiping out its gains over the past two weeks.

“Unless the two parties find a middle ground, the scene is set for a prolonged and painful confrontation,” Sayem said.

Political confrontation and policy paralysis threaten to undermine key reforms needed to revive the economy. There is a risk that the government may backtrack on reforms agreed under the IMF programme – including tax reforms, power-sector reforms, and privatisation of state-owned assets – for fear of public backlash.

If the government backs down from these ongoing reforms, the IMF will likely withhold the next tranches of its $7.6 billion loan; other multilateral agencies, which have committed loans of $3.6billion could follow suit. “This would have damaging repercussions for the economy and could lead to another balance of payments crisis, leading to a further sharp depreciation in the Pak Rupee and higher inflation,” he concluded.

http://www.dailytimes.com.pk/default.asp...2009_pg5_1