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March 9, 2012

PIDE report warns govt on populist economic moves

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March 9, 2012

ISLAMABAD: The Pakistan Institute of Development Economics (PIDE) has warned the government about taking populist economic measures ahead of the general elections that could further compound economic difficulties.
The PIDE, a public sector research institute working under the supervision of the Planning Commission, in its macroeconomic brief released on Thursday observed that the economy is likely see challenging times in future as the government might be tempted to adopt populist measures ahead of the elections.
It said despite some positive developments including easing of inflation and reduction in fiscal deficit, the country’s economy remains in a precarious state with sluggish growth, fragile macroeconomic fundamentals, and heightened vulnerability of balance of payments shocks.
More worryingly, with the government embroiled in political controversies and the election year approaching, pressing economic issues are likely to remain on the backburner dimming hopes of a reversal in economic situation at least in the near term.
The PIDE report said that the present government may have little inclination to undertake structural reforms at a time when it has its energies focused on the next elections. “But we believe that it still has an opportunity to implement a minimum agenda focused on correcting macroeconomic imbalances as well as on setting the future direction for sustainable economic growth.”
To begin with, it suggested, the forthcoming budget should aim at achieving fiscal stability by avoiding politically driven public expenditures, cutting wasteful spending, and channelling resources into key public investments in energy, infrastructure and human resource development, the key drivers of economic growth and development.
“These measurers need to be supported by prudent public debt management through induction of professionals in the debt management office which will help reduce the cost of public debt.”
It said sadly the key

problems afflicting the economy including energy shortages and a host of structural impediments that have held back investment and growth have not been tackled effectively, showing signs of mis-governance and policy inertia.
The report said that there are significant risks to inflation outlook emanating from weak supply response as a result of power shortages, recent hike in fuel and energy prices, and pass through of currency depreciation. “In this scenario, monetary policy needs to be carefully calibrated to balance the objectives of robust growth and price stability,” it added.

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