State of economy.

THE last fiscal year was one of the toughest for Pakistan, and the challenges are far from over. This is the gist of the annual report just released by the State Bank of Pakistan regarding FY2019.

Coming almost four months after the fiscal year concluded, the report remains timely for the important lessons it has for the present, particularly the insights it shares on why the investment scenario remains so dismal. Last year's record high fiscal deficit of 8.9pc of GDP was the result of unrealistic targets set by an outgoing government, according to the bank. A poor revenue mobilisation effort combined with weak expenditure control contributed as well.

The unrealistic targets can be attributed to politics, since an outgoing government was hardly incentivised to leave behind a robust revenue plan, although the drafters of that budget will argue that the innovative thinking around which the numbers were built never found acceptance with the new dispensation.

That debate notwithstanding, a big takeaway from the report is the narrowness of the state's revenue machinery and the enormously ambitious revenue drive that the government has launched. In large part, for example, last year's weak revenue performance stemmed from the failure to mobilise new revenues via two mini-budgets, as well as the politically motivated reductions in sales tax and surcharge on fuels, particularly petrol and diesel.

Whether or not one agrees with the government's decision to try and protect the masses from fuel price increases, it is hard to disregard the fact that, given the inflation...