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Key Economic Data 
 
  2004 2003 2002 Ranking(2004)
GDP
Millions of US $ 96,100 82,300 73,300 44
         
GNI per capita
 US $ 600 520 480 160
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 060 - (24/01/11)

Another narrow miss
The Gailani government was once again on the verge of collapse in January, as another coalition partner quit the ruling coalition. The MQM officially quit over the inability of the government to tackle the rising prices of fuel; the party holds 25 seats in the parliament and is decisive in order to ensure a majority for Gailani. The government had decided to raise the price of fuel by 9% as a result of an increase in international fuel prices, but the move immediately proved very unpopular. Consumer prices as a whole rose 15.5% in 2010, putting a lot of pressure on the poorest (largest) strata of the population. Negotiations started after the MQM quit and it was not long before the government rescinded its decision to raise the price of fuel; then the MQM decided to re-join the government. The opposition PML-N tried to benefit from the situation, presenting itself as a reasonable opposition which negotiated with the government to convince it to abolish the price increase. In reality the opposition was not likely to call for a no confidence vote, since in that case it would have needed to prove that it had a majority of its own. The PML-N would probably have struggled to gather the smaller parties around itself and even if successful it would then have needed to form a government in the middle of a very difficult economic situation. The issue of how to pay for the growing cost of fuel remains of course unaddressed. The American government and the IMF protested against the decision to reverse the price increase; the economists, including some who until recently were advising the government, are also disappointed with the move and see it as a further indication that the ever weaker government is no longer able to take rational economic decisions, one of its few selling points until the end of 2010. The budget deficit will increase by 0.2-0.3 percentage points as a result of this decision; the budget deficit for the current financial year if projected by some analysts as high as 8%.
Can the politicians agree on a plan?

One of the consequences of the rift over the fuel prices has been the postponement of a decision over the planned sales tax. Opposition to the new tax is also strong and the MQM is opposed to it too. Still the government is under international pressure to get out of the impasse somehow, if for no other reason that it needs the next tranche of the IMF US$11 billion loan to be released. Government and opposition are negotiating a reform programme, which the PML-N insists should be focused on a 30% budget cut. On the table are the restructuring of state- owned money-losing companies and a new price mechanism for electricity and gas. Among the best known companies that face restructuring are Pakistani Airlines and Pakistan Steels. The government welcomes the dialogue with the opposition, because whatever decision will be taken will not be very popular, and it wishes to share the blame. The opposition however demands as a prize for its cooperation the ouster of corrupt politicians, a concession which could fragment the ruling coalition even further. One wonders how far that could go and still be able to find a quorum in the parliament.

Many would be surprised if the government-opposition talks produced positive results. The assassination of the governor of Punjab by one of his own bodyguards, a religious extremist, highlights one of the many contradictions of Pakistan. How could a known religious extremist continue to serve in the security detail of one of the most outspoken secular politicians of Pakistan? The tragedy of this hateful act has been to deprive Pakistan of one of its few secularists in a high position, a man of considerable integrity and the courage to what he did that raised the ire of Islamist fanatics –even that some demonstrators were throwing rose petals over the assassin as he was taken to court.

Forecast 2011
It is not easy to be optimistic about Pakistan’s short term prognosis. In fact, absent the return of former president Musharraf, it is well nigh impossible The Zardari government is almost universally recognised as ineffective and corrupt, but significantly nobody seems to be willing to replace it: neither the army nor the parliamentary opposition. The reason seems to be that nobody seems to know how to tackle the multiple crises affecting Pakistan which as a consequence get worse. The only path seems to be to follow the IMF’s advice, an unpopular one which opposition politicians prefer to leave to Zardari. Although the government seemed at the beginning of 2011 weaker and weaker, it is therefore impossible to predict whether it will fall in 2011: in a sense its weakness is a source of strength, its enemies think they can bring it down at any time, so they have no reason to hurry doing that now.

Islamabad’s relations with Washington will likely continue to fluctuate in 2011; Washington knows what the Pakistanis are doing in Afghanistan, it is very upset but cannot figure out how to convince the Pakistanis to downsize their ambitions there. Now Washington says that it does not necessarily plan to leave Afghanistan in 2014 or 2015 (but few in Pakistan or elsewhere believe that the Americans will not disengage). The Pakistani army is more and more upset with the Americans, because they do not want to play its game, but at least in the short term Pakistan needs the US as much as the US need Pakistan. The difference is that the Pakistani military are infinitely more at ease with playing brinkmanship than are American politicians.

The IMF forecasts GDP growth slowing to 2.8% in 2011, down from an estimated 4.8% in 2010. Considering that 2010 can hardly be considered a good year for Pakistan, the forecast is not encouraging. Recovering from the floods will take time; in 2010 Pakistan benefited from low oil prices, but the trend has been inverted and in 2011 Pakistan will as usual suffer from high oil prices. Newly rising food prices could add to turmoil.
 

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