Purchasing power of masses is on the decline, which is also evident from the growing percentage of people living below the poverty line

Sep 12 - 18, 2005

The harsh reality is that despite improvement in economic indicators the purchasing power of people is on the decline. The number of people living below poverty line is increasing with the passage of time. More and more people have begun to ask economic managers the reasons for having no trickle down effect of economic prosperity. The economic managers at times get a little bitter while responding to this question. However, it is a fact people wish to understand the reasons and the hike in the level of desperation is natural.

The economic managers are never tired of saying that what they have achieved is near a miracle. The commonly referred achievements are: foreign exchange reserves exceeding 12 billion dollars, a GDP growth rate of 8.4% achieved during last financial year, tax improvement to GDP ratio, higher allocations for public sector development projects and human resource development. It is often being asked that if these assertions are true, one does not have reasons to doubt the credibility, why the condition of masses is getting from bad to worse with the passage of time?

A number of critics say that least was the contribution of economic managers in the building of foreign exchange reserves. It was more of an outcome of the changing geopolitical situation after 9/11, which led to reprofiling of Pakistan's external debt. On top of this, funds for utilizing Pakistan-based logistic services and purchases of dollars from local money changers helped in building up the reserves. They also say that after the reduction in such inflows the reserves are on the decline.

One may understand the level of desperation and frustration but it is also a hard fact that improvement in per capita income does not mean change for an average person. It is because the average figure is mostly misleading. The per capita income of a small percentage of total population may have gone up manifold but purchasing power of masses is on the decline, which is also evident from growing percentage of people living below the poverty line.

However, one must also keep in mind that there is a time lag between higher spending on public sector development programs and their real impact on the people. According to an analyst higher spending on public sector development program does not necessarily mean improvement in earnings of people because it does have impact on the quality of life. Construction of a motorway requires spending of millions of rupees but does not add to the prosperity of people. Similarly plying of air-conditioned buses may make traveling easier but also add to the expenses.

It is also being said that attaining higher GDP growth rate of 8.4% has not benefited the masses. However, it is not correct because higher GDP was the outcome of improved production and productivity. If one may recollect, a few years back the average capacity utilization of various sectors was dismal. As against this, most of the industries, at present, are working at close to designed capacity. Most of the units have enhanced capacity through BMR and are now in the process of expanding capacities. This has certainly increased the demand for manpower. However, due to growing emphasis on technology the nature of jobs has changed. While the job opportunities for technical and skilled people is on the rise, the job opportunities for un-skilled are on the decline.

It is also said that increase in production of cars, airconditioners, motorcycles and other consumer durables hardly has any impact on the life of common man. The higher sale of these items is driven by consumer finance, which is allowing people to live beyond their means or on the borrowed money. Apart from everything, this facility is available to a very small percentage of population, mostly living in the urban areas.

There is also a growing skepticism about the much talked about 'Privatization for People' program. Though, the ongoing privatization program has yielded millions of dollars, its true benefits are not yet evident; the worst example being KESC. It may be true that it was a very difficult transaction, but backing out by the buyer was even more embarrassing. There is also some uneasiness about the payment by the buyer of PTCL. Does this mean that Pakistan is still not considered a safe heaven by the foreign investors? While the reality is not as bleak as perceived by many, it is also a fact that Pakistan has not been able to project the correct picture.

It may be true that Pakistan needs foreign investment but not by ignoring the local investors. At time one feels that there is discrimination between the two, foreign investors being the preferred one. This often leads to flight of capital and brain drain. If the local capital and human resources continue to move out of the country, it would only be left with low quality entrepreneurs and limited capital. The policy planners have to keep in mind that foreign investment cannot be ensured without the active participation of local investors.

The effectiveness of public sector development is directly dependent on tax collection but more importantly on the distribution among the provinces. There is a growing feeling among the provinces that the distribution is not equitable. Whether the perception is right or not the least developed areas need more allocations. Previously, incentives were given for the establishment of industries in the lesser developed areas but the present policies offer no incentive. Lack of employment in the rural areas is resulting in forced movement of people to urban areas. This is putting pressure on the urban resources as house rents are going up, traffic jams are becoming a norm and other amenities are getting scarcer.