The political and constitutional crisis raging for the last two months has taken a heavy toll on an economy already deeply troubled. According to Prime Minister Nawaz Sharif, the economy suffered a daily loss of Rs1 billion, while he put the erosion in foreign exchange reserves at $200 million. If the official estimates of losses are accurate, then what is implicitly being conveyed is that the projected GDP growth of six per cent this year will become unattainable. Also damaging has been the halt in the process of economic recovery. If Rs 60 billion have been "lost" in two months, this means that domestic product could be down by two per cent as GDP at current prices is at about Rs 3 trillion.
Even apart from this, there are other troubling signs on the economic front. Cotton production is expected to be down to nine million bales against earlier estimates of 12 million bales. This means there will not be any exportable surplus. Sowing of wheat has been delayed. Meanwhile, the prevailing situation is unlikely to spur investment and foreign portfolio investment is reported to be seeking other avenues outside. The decline in imports during the first five months of the current financial year is symptomatic of industrial stagnation. The overall impact on exports cannot but be negative. Therefore, exports might grow only marginally this year.
A recessionary economic situation has already been reflecting itself in lower revenue as the gap between target and recovery is so far around Rs 30 billion. The government will need to collect more every month over the next seven months to meet the revenue target. This has been rendered all the more difficult as growth prospects have diminished. The fall in foreign exchange reserves remains a matter of great concern. In this area, too, the situation could worsen if donors like the International Monetary Fund, the World Bank and the Asian Development Bank withhold the release of promised loans. The recent escalation in bank borrowing clearly indicates a troubling trend.
The government's economic team needs to refocus its attention on these urgent problem areas to ensure that budgetary targets are met and bank borrowing is sharply contained. It also needs to avoid slackening of its structural reforms programme, which is already beginning to run out of steam due to both weak political will and poor implementation.
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