Pakistan’s Macroeconomic Situation

Sakib Sherani ()
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Sakib Sherani: Chief Economist, Royal Bank of Scotland, Pakistan.

Lahore Journal of Economics, 2008, vol. 13, issue Special Edition, 5-21

Abstract: As a result of policy inaction in addressing structural issues over a protracted period and a wrong set of economic priorities followed over the past several years, Pakistan’s economy faces a grave set of challenges. Among the many issues, which range fromhigh inflation to power deficits and water stress, the most immediate and pressing is the need to restore fiscal order. While pressure on the coalition government to reduce the economic hardship of the electorate is understandably intense, the policy response needs to balance the alleviation of palpable hardship in the short term, with the ability to provide sustained benefits over the longer term. Given the sharp constriction in available fiscal space, adopting a policy course in the short run that raises expectations of “relief” may not be wise, in either political or economic terms. In the longer term, however, it is a misconception to view the available choices in purely binary terms, i.e. that “macroeconomic stability” (a much-maligned term, loath to politicians not just in Pakistan) is mutually exclusive to “pro-poor” agendas. Raising revenues by broadening the tax base meaningfully, in conjunction with rationalizing bloated government/public sector expenditures can free fiscal resources, which can be diverted totargeted subsidy programs. Ignoring macroeconomic stability, on the other hand, will eventually also undermine the ability of the government to influence economic growth, as growing fiscal and monetary constraints limit its ability to run appropriate policies. As experienced in the 1990s, this willslowdown both investment as well as growth, hurting the poor.

Keywords: Pakistan; Macroeconomic Stability; Fiscal Policy; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E52 E62 (search for similar items in EconPapers)
Date: 2008
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