THE government spokesmen say that the economy has come out of the woods and is on its way

to progress. According to them, last year the exports had crossed the $25 billion mark for the first time, home remittances rose to $11.2 billion, foreign exchange reserves were up at a record $18 billion and the stock market was performing satisfactorily. The latest press reports say that government borrowing from the State Bank has has fallen sharply since beginning of the current fiscal year. The CPI inflation has come down to 11.56 per cent and core inflation is down to 10 per cent as a result of the change in the base year, increased coverage of items and inclusion of more towns/cities. However in view of the widening of the fiscal deficit, whether the government would stay committed to no new borrowings from the central bank is not clear though it is trying to clear circular debts of energy companies by mobilising long-term funds, through Pakistan Investment Bonds (PIBs). The food inflation may also increase because of rains and floods in Sindh and the widespread damage to crops may reduce targeted growth rate. Officials maintain that the anticipated conversion of circular debt into PIBs will help manage budget deficit at 5.8 per cent of the GDP this year. As opposed to the governments view, a report by the World Banks country director to Pakistan presented to the WBs executive directors on August 30 in Washington DC, places the overall economic situation in Pakistan behind India, Sri Lanka, Bangladesh and even Nepal. A press report on September 19, attributed the dismal economic scenario to the overall security situation, political tensions, slow progress on the proposed economic reforms and natural calamities such as the latest floods. Pakistan, the WB report said, lags behind other countries in the region because of its declining GDP growth, rising unemployment and growing poverty. The countrys GDP growth which was five per cent in 1990 dropped to 2.5 per cent in 2010-11. Unemployment, as laid down in the report, currently stood at 13 per cent. Lower GDP growth over the last three years made employment generation lag behind increase in joblessness. Other countries in the region enjoy a much better GDP growth rate. Pakistan lags behind other countries in the region in most social and economic indicators. In the human development sector, net enrolment in educational institutions reportedly stood at 67 per cent in Pakistan, compared to 95 in Sri Lanka, 90 in Bangladesh and 85 per cent in India. Infant and under- five mortality rate stood at 80 per 1,000, which was higher than the rate in all other countries in the region. Similarly, female participation rate for the 15-64 age group, in economic

activities, stood at 21 per cent in Pakistan, considerably lower than the average of 38 per cent for South Asia. Other indicators, like the tax-to-GDP ratio in Pakistan at nine per cent is the lowest in South Asia, according to the WB report. Huge government expenditure and high subsidies, coupled with poor tax collection, has pushed up the governments fiscal deficit to above six per cent of the GDP. To finance its huge budget deficit, the government was borrowing from the State Bank of Pakistan (and commercial banks). As a result, inflation had jumped to 16 per cent and above, which was again the highest in the region. The WB feared that the government projections of 12 per cent inflation, four per cent fiscal deficit and four per cent GDP growth rate made for 2011-12 may not be achieved, considering the trend during the last three years. An earlier report of the Federal Bureau of Statistics (FBS) revealed that prices of food items had soared by 74 per cent, during the last three years. As a result, real incomes of people belonging to the lower income categories had been drastically reduced. To add fuel to the fire, some four hundred thousand workers lost their jobs in recent years due to the power outages. Higher food inflation, accompanied by rising unemployment, has resulted in widespread poverty. An official survey to ascertain the current poverty level has not been finalised so far. In the absence of latest statistics, analysts estimate the current poverty level at 35 per cent of the population. In view of growing unemployment and poverty, ruthless food inflation, low GDP growth, poor tax collection despite huge governments budget deficits and social backwardness, can any one draw solace from a few favourable indicators such as higher exports and increase in the income from home remittances etc? The WB report admits that Pakistans external balance situation looks better for the first time in the last six years. However, the bank was of the view that this was primarily due to better export prices, and remittances.