Prof Dr Khawaja Amjad Saeed The present government inherited various legacies such as 'low GDP - tax ratio, heavy internal and external debt burden, growing population, power shortage, gaps in balance of payment, savings and investments and budget deficit to GDP relationship. Besides, due to geo-political compulsions defence of the country cannot be compromised in the larger interest of maintaining territorial integrity and sovereignty of the country. A long way is needed to provide an integrated solution to the foregoing challenges. However, the democratic government has started taking head-on measures to mitigate the sufferings and reduce adverse impact on the economy. Changing environment The democratic government has been facing with difficult economic problems - both on International as well on domestic fronts. Globally the government faced three problems namely: First, high escalation in Oil Prices, secondly, there were food shortage and food prices sky-rocketed. Thirdly, global recession has taken place and thus this external factor also adversely affected the economy of Pakistan. These factors did not exist before the take over by the democratic government. At home, due to unwise policies of the previous government by not maintaining a buffer stock of wheat and exporting the excess wheat. For the last over one decade, no earlier government ever bothered to tap the hitherto potential of 58,000 MW through Hydro Electric sources. Due to this, the economy on all fronts suffered a lot and the common man received a rude shock. Moreover, the recent unfortunate Bombay blast event brought a big setback for Pakistan due to lacklustre attitude of India on economic front towards Pakistan. Consequently, the much-expected vibrancy which would have been seen on the front of healthy and productive economic ties between Pakistan and India received a big jolt. Major economic achievements Efforts have been initiated to first develop and later operationalise Economic Stabilisation Programme. Due to this initiative, balance of payment deficit reduced with tightening the belt of imports and persuading Pakistani expatriates to send more remittances to Pakistan from abroad. Budget deficit to GDP ratio Based on discussions held for developing home ground solutions, the ratio of budget deficit to GDP has been contained to manageable limits. This is likely to be in the range of 4.00% to 4.2%. The European Economic Union considers 4% ratio as a safe limit. Inflation Inflation is a big monster and has been fuelled in Pakistan due to external and internal factors. On the internal front, supply shortages, lack of demand management, hoarding etc. have been instrumental in putting tremendous pressure resulting in high inflation. However, due to various efforts initiated by the government, a declining trend has been recorded in the following indicators: (a) Consumer Price Index (CPI). (b) Wholesale Price Index (WPI). (c) Sensitive Price Index (SPI). Foreign exchange reserves The present government inherited foreign exchange reserves to the extent of US$ 16 billion. Unfortunately, due to import of oil and food items, exorbitant price was paid. The Foreign Exchange Reserves depleted by US$ 1.4 billion per month. These factors were beyond the control. However, fortunately declining oil and food prices favourably helped. Firstly, the price of oil abroad declined considerably to $ 40 against $ 147per barrel. Further through the Emergency Fund of IMF a sum of $ 4b was received which aggregated the foreign exchange reserves to $10b. Recently, the government developed an understanding with Iran to buy oil at deferred credit plan. Similar initiatives are on the way with other ME countries and accordingly this will help stabilize the level of our forx exchange reserves to $ 10b. Rupee - dollar parity rate Rupee has been falling against US$ since the take over by the present government due to BOP crisis. However, in the recent months, the dollar parity rate to Pak Rupee has stabilized at Rs 79 to US$ 1. Efforts are being made to clamp down on foreign exchange dealers so that outflow of dollar from Pakistan through informal channels is brought to a grinding halt and accordingly the US$ parity rate will be strengthened in future. Tax revenue Tax revenue collected by the FBR stood at Rs 553 billion (Net) during the first six months (July-December, 2008-09). The comparative figure for the corresponding period (July - December, 2007) was Rs 435 billion. Accordingly a healthy increase of 27% was registered. Direct taxes registered a growth of 28% (Rs 46 billion), which is more than the amount during the same period in the last year. Moreover, indirect taxes have also showed an increase of 27% (Rs. 72 billion). Export performance Exports grew 10.6% during July-December 2008 and totalled US$ 9.6 billion. The comparative figure for the corresponding period of the last year was US$ 8.7 billion. Workers remittances Workers remittances totalled US$ 3.6b in July December 2008 against US$ 3.1b in the last year. This has depicted an increase of 18.7%. Efforts are being made to motivate Pakistan expatriates abroad to use official channels for sending remittances. Foreign direct investment (FDI) FDI is affected by several factors at home and abroad. However, during July - December 2008, FDI amount was US$ 2,327m against $ 2,066m in the corresponding period last year that manifested an increase of 12.6%. Emerging trends Economy of Pakistan is showing clear signs of improvement. A sum of US$ 0.70 billion was received in FDI in December 2008. A similar amount was received through remittances from abroad. The current account deficit declined to US$ 0.50 billion in December 2008. Government fiscal deficit remained on target during July-December 2008 at around 2% of GDP. If this trend continues, the expected fiscal deficit to GDP is likely to be 4% during 2008-09. This ratio is considered as safe limit even by European Economic Union. Consumer Price Index (CPI) has declined 25% by end of December 2008 and is expected to further decline by June 2009. The author is founder Principal, Hailey College of Banking & Finance, University of the Punjab.