Comprehensive report on economy - misplaced?

The panel of 18 economists formed by the Government to help stabilize the Pak economy recently came up with its final report outlining the steps they propose in the short-term and the ones aimed at achieving macro-economic stability. Some of the key measures they have proposed include: * Reduction in defence expenditure. * Revenue mobilization through additional taxes. * Imposition of a broad-based regulatory duty on non-essential imports. * Capital gains tax on properties. * Income tax on agriculture. * Withdrawal of all income tax exemptions. One would perhaps have agreed wholeheartedly with most of the above suggestions a few months back, but given the recent dramatic changes in global economic dynamics they not only come across as being irrelevant, but also contrary to what is required in the present changed circumstances. Frankly, even the "all seasons' favourite", a call for a reduction in the defence expenditure, appears ill-timed at a juncture when the country is facing its biggest internal and external threats ever, and at the same time is undergoing a must win pro-democracy transition, the success of which largely remains underpinned on maintaining institutional harmony By this time it is quite evident that the high inflation during the second half of 2007 and nearly the first eight months of 2008 was mostly the surge in world commodity prices. "Core" inflation, excluding food and energy costs, in fact, remained quite stable. However, since August 2008 the commodity boom has turned to bust, changing the inflation look completely. The price of a barrel of crude oil has tumbled from a peak of $147 in July to below $60 in recent days. The global index of non-oil commodity prices has fallen by 40% since July and if raw-material prices continue to maintain this trend, the year-on-year change in retail prices of food and fuel will turn sharply negative in 2009. Actually, the last few months have been quite brutal in which the prospects for the world economy have seriously deteriorated. Central banks that not too long ago were truly fearful of inflation, are now busy slashing interest rates to avoid deflation and keep the economic cycle going in order to ensure that the current financial crisis does not turn into a 1930s like catastrophe. After Japan now the US fed funds rate is also flirting with the zero level and the central reserve banks across the world, England, European Union, Central European Economies, China, Brazil and even India, are all rising to the occasion and cutting base rates to promote spending, thereby providing stimulus to their respective economies in order to overcome looming recession. Pakistan ironically seems to be doing the opposite? The other major change that we witness in the political mindset across the spectrum is that nearly everyone these days seems unanimous on tax cuts. The pragmatic need to stimulate flagging economies has achieved what years of principled arguments for lower taxes failed to do. Bad economic news and the fear of high unemployment are making all serious economic managers reach a consensus within themselves on tax cuts. Germany, for example, has come up with a rather innovative package of its own that includes $15 billion of fresh spending to boost employment, $65 billion of investment spending through tax cuts and other forms of industrial rebates to unfurl an "umbrella for jobs" and increased subsidies on energy, plus subsidized lending rates to small and medium-sized enterprises (SME) to help sustain German supremacy in manufacturing. China and India not to be left behind, especially after reaching a stage where they have been billed as the future of world economics, are busy taking key stimulus measures of their own. India has increased money supply to meet cash liquidity requirements of its manufacturing, has cut interest rates, and slashed taxes to ensure its industrial competitiveness. Further, to help the exporting sector, export tax rebates have been increased and made more broad-based, energy continues to be subsidized and the value of Indian rupee is being held back to favour exports. China, on the other hand, starting August 1st has raised its own tax rebates on range of textiles and garments to 13 percent and is going to spend $586 billion on an economy stimulus package that virtually covers everything under the sun from major industrial and agriculture tax cuts, to measures like, providing cheap credit to farmers and SME, increased spending on health and education, subsidies to key manufacturing sectors to sustain its export-led growth and achieve a GDP growth rate of at least 8 percent in 2009, enhanced spending on infrastructure development and adopting policies to encourage domestic spending. A mere glance at what we, instead, are proposing as remedial measures to our economic challenges or the way we look set to manage our economic affairs in the coming months tells us that our approach tends to be diametrically opposite to what the rest of the world is embracing. Now either Pakistan is a unique case, which needs to be managed differently than the rest of the world and only time will prove the seemingly bizarre approach of our experts to be right or once again we will end up mistiming and misjudging our economic strategies going forward? For all ours sake one prays the former to be correct, as the country cannot afford yet another mess-up

The writer is an entrepreneur and economic analyst. He can be contacted at

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