THE State Bank of Pakistan's third quarterly report did not make cheery reading. Everything that could go wrong, apparently, is going wrong. First up, the economy is not going to grow as much as was predicted. It is not going to be the 7.2 percent the previous regime assured the public almost exactly a year ago, but somewhere between 5.5 and 6 percent. What was above target was inflation, set to remain a double digit 12 percent. The same is the case on the fiscal front. The current account deficit is set to approach 7.8 percent of the entire GDP. It was supposed to be curtailed to 4 percent according to government stipulations about fiscal responsibility. The trade deficit is also set to be rather high, with $19.9 billion worth of exports against $39 billion worth if imports. On the policy front, the first and foremost thing on everybody's mind is how to control inflation. Productivity improvements, as even the report suggests, are going to be essential for that. The short term remedies to the effect, subsidies and tariff cuts, are not only unaffordable, specially keeping in view our ballooning fiscal deficit, they are also unsustainable long term policy. Of course, even though productivity improvements, coupled with prudent export management, would stem the rise of food inflation energy is going to be an exogenous supply shock that will show no sign of slowing down. That is a reality perhaps the entire world is beginning to reconcile with, even spoiled consumers in the US. The Pakistani government isn't entirely powerless in that regard, with considerable leeway to work with on the taxes it earns from POL products, but we don't see the large fiscal deficit letting the government making such a decision to make oil cheaper locally. If that is true, local petrol prices are set to go even higher, considering the government's recent assurance to the World Bank of scrapping the subsidy on oil (yes, apparently there is some sort of subsidy on oil even though the government taxes the product at the same time) that shields the local consumers. While talking about the fiscal deficit, the Bank also explicitly suggested to the government something about its own coffers: stop borrowing from us; find someone else that will let you keep tabs. Diversify your finances away from the central bank, to put it nicely. Another blame shirking the Bank has done in the report, perhaps reasonably, is that the effects of its monetary policy have not translated into much improvement on the inflation front because of the expansionary fiscal policy. The government, however, cannot lower inflation without spending a bit on, say, infrastructure for the agricultural markets. A bit of a vicious circle there. Perhaps the government can at least start with certain improvements that won't cost much money, like better regulation of the pesticide, fertilizer and seed markets?