July 05 - 11, 20

Energy shortages not only hamper economic growth, but also have clear impact on employment, exports and development in general.

Recent analysis based on a survey of industrial units show that the cost to the economy of power outages in the industrial sector in 2008-09 was Rs230 billion. This is equivalent to 11 percent of industrial value added. The reduction in industrial value added has led to a loss of industrial employment of about 535,000 workers.

The total cost to the economy of power load shedding in the industrial sector is estimated at Rs315 billion. This is equivalent to two-and-a-half percent of the GDP. The loss of exports is estimated at about US$1.3 billion in 2008-09.

There are no much hopes on improvement of economy in the year 2010-11, as experts had shown strong reservations on the approach of the decision makers for revival of the economy.

In future, the macroeconomic imbalances, especially the large and persistent fiscal deficit is going to be a central challenge for the government. Strong tax mobilisation efforts both at the central and provincial levels are necessary. The original IMF medium-term framework of a reduction of deficit to less than three percent of GDP by 2012-13 may be neither feasible nor desirable. This could fundamentally jeopardise prospects for revival of the economy.

Pakistan has had a long history of going on and off IMF programmes since 1988. The past experience shows that reliance on IMF by Pakistan had never been successful. However, from 1999 to 2003, the IMF programme was successful in bringing down sharply the current account deficit from over four percent of the GDP in 1998-99 to a virtual surplus in 2001-02. The inflation rate also remained low, at below four percent, while the fiscal deficit was contained at about 4.5 percent of the GDP. But the process of severe contraction of aggregate demand in the economy implied a very low growth rate of the GDP of only three percent. Consequently, there is evidence that unemployment and poverty rose sharply during this period. In December 2004, the then government announced that Pakistan would never go once again with a 'begging bowl' to the IMF. But history has a nasty tendency of repeating itself. The large oil price shock in 2008 along with the rise in commodity prices, especially of food items like wheat and edible oil, led to the IMF programme. There was a quantum decline in the growth rate of the economy from an average of 6.8 percent from 2002-03 to 2006-07 to two percent in 2008-09, with the likely outcome of just over three percent growth in GDP in 2009-10.

Experts are of the view that if Pakistan is to remain on the original fiscal framework agreed with the IMF then there is very little fiscal space left for executing the development programme, which will have to fall to about 2-3 percent of the GDP and show a drop in real terms of over 19 percent in relation to the already depressed level in 2009-10. This is despite a significant increase expected in the tax-to-GDP ratio of 0.6 percent of the GDP. In the IMF framework, the GDP growth rate will remain below 5 percent up to 2013-14.

Pakistan is facing manifold challenges. To tackle these challenges it is necessary to focus on core issues.

According to the UN Report (2009), total water renewable resources in Pakistan have decreased from 2,961 cubic meters in 2000 to 1,420 cubic meters per capita in 2005. It is estimated that by 2025, not more than 1,000 cubic meters will be available per person in Pakistan making it a water scarce country. Over 80 percent of the cropland is irrigated in Pakistan. The country receives an inflow of 104 million acre feet (MAF) from the Indus Basin out of which 64 MAF are consumed by crops and the remaining is lost to the Arabian Sea and seepage. The flows in the three rivers are declining at the rate of 6.6 percent per year. The other main source is ground water, which accounts for 40 percent of irrigation. There is evidence of over exploitation as ground water pumping has increased from 3.34 MAF in 1959 to 55 MAF by 2009.

The loss of GDP in 2008-09 due to underinvestment in water in the current decade has been as much as Rs125 billion, equivalent to 4.8 percent of the agricultural value-added.

Federal Bureau of Statistics (FBS) figures show that textile exports stood at $9.324 billion and contributed 53 percent in the total exports of $ 17.6 billion during the first 11 months of the fiscal year 2009-10. The other major contributors are manufacturing group, which had share of 19.21 percent with $3.381 billion followed by food group 17 percent and $2.992 billion, petroleum and coal 5.06 percent or $890.629 million and miscellaneous exports 5.74 percent or $1.01 billion.

The textile exports managed to grow by 6.77 percent despite difficult economic conditions due to war on terror and electricity crisis owing to increase in exports of raw materials such as cotton and cotton yarn. The export of both raw materials fetched $1.486 billion foreign exchange for the country.

In terms of volume, the export of cotton cloth leads in textile earnings with $1.66 billion. It is followed by knitwear $1.587 billion, bed wear $1.573 billion, and ready-made garments $1.158 billion.

What we need is to concentrate on giving boost to exports for which new markets need to be explored. The government must overcome the economic difficulties faced by the country and remove the irritants hampering growth in exports.

Pakistan, being part of the global trading system, is no exception to face the impact of supply shocks, soaring oil, food and other commodity prices and turmoil in the international market.

The Strategic Trade Policy Framework (STPF) was announced for three years, aimed at enhancing competitiveness and ensuring sustained export growth but real issue is implementation.

There must be better coordination between chambers and commercial sections of the ministry, posted abroad. There exists huge potential in the country and the need of the hour is to adopt self reliance and focus on country's own resources instead of looking for aid, loan or grants.