According to inside reports, the total federal and provincial budget deficit for 2011-12 is estimated to be Rs 950 billion, or 5.3 percent of GDP. Although the budget deficit has been increasing over the years, this figure is the biggest ever in Pakistan’s economic history and, judging by this trend, it will cross the one trillion rupee mark the coming year. The government hopes to finance this gap between revenue and expenses through borrowing from external and internal sources. How this will come about without causing further inflation and damage to the economy is a mystery. The IMF is not convinced that the deficit could be curtailed to this level, given the devastation caused by floods last year, instability and flight of capital due to terrorism, power shortages and the general unhealthy state of the economy. The IMF has refused to grant Pakistan the next installment of the loan package agreed upon with this government for its failure to implement measures that were part of the agreement. It could be surmised that Pakistan will pledge some more of its sovereignty to convince the IMF to grant the much needed financial support. As far as domestic borrowing is concerned, Pakistan has undergone a steep rise in core inflation due to excessive government borrowing to meet its expenditures.
More of such borrowing is likely to further burden the consumers. The signs are that Pakistan is going to be in real trouble in the near future.One can imagine the political ramifications of this situation for the government, which has already lost popular support. Power outages coupled with unbearable levels of inflation may induce a spontaneous outburst of mass protest, which will destabilise the political system even if it fails to dislodge the government. The fact of the matter is that as long as Pakistan avoids reconciling its foreign and strategic policies with the demands of today’s world, it will continue to need an inflated defence budget and at the same time face terrorism that has ruined its economy. With the current set of foreign and strategic policies, no economic measure, however ingenious, is going to bear fruit. The country’s managers continue to pass the burden on to the backs of the people. A small incident might prove to be the last straw on the camel’s back and then the powers that be will be in deep trouble. – Dailytimes
