LAHORE: The Pakistan economy is once again at a critical juncture and the country is facing very serious economic and social challenges, a report by the Institute of Public Policy, Beaconhouse National University, said.

The report, titled "State of the Economy: Challenges and Opportunities, was launched at a ceremony at a local hotel on Tuesday. It was compiled by a team of renowned economists, including Sartaj Aziz, Shahid Javed Burki, Dr Hafiz A Pasha, Dr Parvez Hasan, Dr Akmal Hussain and Dr Aisha Ghaus Pasha.

The report says the country is facing very serious economic and social challenges after a period of strong economic expansion, relative macroeconomic stability and increased foreign investor confidence over years 2003-2006. It said macroeconomic balances had been offset badly. "Inflation has touched record levels this year on the back of three previous years of high single digit inflation," he added.

Speaking at the launching ceremony of the first annual report, Shahid Javed Burki said the main objective of the report was to outline a comprehensive economic and governance strategy to facilitate the tackling of challenges, which required an urgent attention of the new leadership. "The main message of the report is that growth, equity and financial soundness must be pursued simultaneously," he added.

Dr Hafiz Pasha appreciated the prime minister's announcement of a cut in the PM's House budget. He said such announcements were also required by others. Dr Akmal Hussain said there was a dire need to take steps to improve the economy or 63 million people would be pushed below the poverty line. He said the government should encourage banks to provide credit in rural areas. "The government should allot land to people for cultivation," he added.

Dr Aisha Ghaus said the report highlighted the burden of high prices, especially of food items, which had become unbearable for the poor. The report said poverty was consequently on the rise again after a whatever decline had been achieved in poverty alleviation. "Structural problems, impeding growth, have come dramatically to the forefront with major power shortages and massive loadshedding. On the top of it, the erosion of competitiveness of the country's main exports ñ textiles and clothing ñ and an upsurge in imports, especially due to high oil prices, have led to a large increase in the trade imbalance. This has led to a continuing decline in the level of foreign exchange reserves and in the value of the rupee," the report added.

In an attempt to assess the present situation, the report analyses short term causes of the economic unraveling as well as underlying longer-term factors that continue to impede our economic and social progress.

"The strategic shift being recommended has several mutually reinforcing elements, including making a radical macroeconomic adjustment by a sharp cutback and a restructuring of public spending that has grown sharply during the last five years; a determined effort to mobilise tax revenue from segments of society whose contribution to tax revenues has come down sharply and those who escape the tax net; improving incentives for savings and discouraging luxury consumption," it added.

It also called for expanding the safety net for the poor by allocating at least Rs 50 billion to minimise the impact of the rise in food prices and making expansion and diversification of exports; strengthening decentralisation by devolving governance and expenditure from the centre to the provinces and from provinces to local governments; expanding education at all levels, by improving the quality of public education up to secondary level and increasing outlays for research and development, especially for agricultural research and extension.