IN THE MESS
Aug 15 - 21, 2011
Despite passage of 64 years of independence, the country is still in the grip of manifold challenges both on internal and external fronts. Undoubtedly, the country's economic situation is in bad shape and the countrymen are facing worst ever electricity and gas crises, double digit inflation, bad governance, poverty, unemployment, lawlessness and above all political divide.
Pakistan was established in 1947 and since its inception it has been surrounded by countless issues including missing infrastructure and insufficient resources. Despite having natural raw resources in abundance, Pakistan is a developing country with limited development in every era due to the problems it faces both on internal and external fronts.
As per statistics made available to PAGE, poverty has increased roughly from 30 per cent to 40 per cent during the past decade. Consider that if 40 per cent of a country's population is leading their life below the poverty line in which the people are deprived of basic necessities of life such as clothing, shelter, food, education, health and other facilities, what would be the situation.
Literacy is defined as persons aged 15 or above who can read and write. Pakistanis are officially reported to have 50 per cent literacy rate meaning thereby half of its population is illiterate. With such family backgrounds, inflation, poverty, and child labor this rate is expected to increase in future. Even for those who are termed as literate are only able to read and write, which in today's technology oriented world is still considered as illiteracy. Majority of the people forming the top controlling tier is almost unaware of technologies and technical mindset, thus causing the country to adopt the new technologies at a snail's speed. We need to focus on education and make sure revolution in education sector.
Due to lack of good governance, people or groups have devised their own goals and are running after personal gains. Poor governance is badly hitting the country.
Pakistan can never move forward with its proxy war politics with India and its involvement in the so-called US war on terrorism. It has to strike peace with India and other neighboring countries so that it can use its resources for its own people's welfare and focus on its collective objectives. Pakistan has more potential to be a developed country earlier than India. It has the resources and talent. Yet, it seems to sink lower by the day. We need to follow independent foreign policy in the interest of the country as well as nation.
Pakistan's economy demands immediate measures for its survival. Pakistan has one of the lowest tax-to-GDP (gross domestic product) ratio in the world, which is currently around 10 percent. All sectors of the economy need to be taxpayers beyond a certain level of income irrespective of the source of income. The government needs to focus on including all sectors in the tax net, along with rationalizing its expenditure, as those would be more structural and sustainable measures. Inflation, the budget deficit, and the availability of credit for the private sector remained a concern.
In the year 2010-11, as per official claims different sectors performed as under:
- Major crops accounting for 31.1 per cent of agricultural value added registered negative growth of four per cent compared to a negative growth of 2.4 per cent last year and a target of 3.7 per cent.
- Minor crops registered a growth rate of 4.8v per cent compared to the target of three per cent and massive negative growth of 7.8 per cent last year.
- Output in the manufacturing sector witnessed expansion of three per cent in 2010-11 as compared to expansion of 5.5 per cent last year on the back of strong performance from small and medium manufacturing sector.
- Large-scale manufacturing grew by 0.98 per cent (July-February 2010-11) incorporated in the national accounts but the growth is now 1.7 per cent in July-March 2010-11.
- The services sector grew by 4.1 per cent against the target of 4.7 per cent and actual outcome of 2.9 per cent. Within services sector, wholesale and retail trade sector grew at 3.9 per cent as compared to 4.6 per cent last year and the target for the year of 5.1 per cent.
- Finance and insurance sector recorded negative growth of 6.3 per cent in 2010-11 as against contraction of 11.3 per cent last year. Public administration and defense posted a stellar growth of 13.2 per cent as compared to 2.5 per cent in last year.
- Social services sector grew by 7.1 per cent, which is slightly higher than the target of five per cent but lower than last year's actual growth of 7.8 per cent.
- Pakistan's per capita real income has risen by 0.7 per cent in 2010-11 as against 2.9 per cent last year. Per capita income in dollar term rose from $1073 last year to $1254 in 2010-11, thereby showing tremendous increase of 16.9 per cent. This is mainly because of stable exchange rate as well as higher growth in nominal GNP.
- Real private consumption rose by seven per cent as against four per cent attained last year. However, gross fixed capital formation lost its strong growth momentum and real fixed investment growth contracted by 0.4 per cent as against the contraction of 6.1 per cent in last fiscal year.
- The total investment declined from 22.5 per cent of GDP in 2006-07 to 13.4 per cent of GDP in 2010-11. Fixed investment decreased to 11.8 per cent of GDP from 13.4 per cent last year.
- The national savings rate decreased to 13.8 per cent of GDP in 2010-11 as against 15.4 per cent of GDP last year. Domestic savings also declined substantially from 16.3 per cent of GDP in 2005-06 to 9.5 per cent of GDP in 2010-11.
The country's economy was subjected to enormous direct and indirect costs, which continued to rise from $2.669 billion in 2001-02 to $13.6 billion by 2009-10.
Investment-to-GDP ratio also nosedived from 22.5 per cent in 2006-07 to 13.4 per cent in 2010-11 with serious consequences for job creating ability of the economy.
Former Chairman Pakistan Industrial & Traders Associations Front (PIAF), Irfan Qaiser Sheikh has urged the government to redesign all economy-related policies in consultation with private sector.
According to him, turning around of economy is a doable job but to achieve the target the government would have to chart out a common economic agenda with a clear-cut implementation mechanism.
Mr. Sheikh said that no measures would work until and unless the issue of energy is resolved. He said that the country needs to utilize indigenous resources to overcome energy shortage. He said that the option of importing electricity could also be availed as a short-term solution to this menace, which has taken its toll.
He suggested that to wear off the intensity of pressure being faced by the country, the government would have to activate all diplomatic channels. He said that there are certain economic issues including low growth rate, high inflation, rising unemployment, continued fiscal indiscipline, growing poverty, surging food and energy prices, expensive credit to private sector, alarming increase in government borrowing, profound circular debt, poor revenue collection coupled with increased spending, and low foreign investments and above all low tax-to-GDP ratio.
He said these issues need some out of box measures. He said: "Western economic theories cannot be applied in Pakistan where most of the economy is in non-documented sector.
Lowering tax rates is the best way to lure non-documented sector into tax net. The government should lower sales tax rates for all manufactured goods to five percent but continue charging 17 percent GST on utilities like electricity, gas and telephones. The documented sector should be given exemption certificates for sales tax on utilities while the non-documented sector should be asked to pay until they come in tax net."
He said that industrial degradation due to unavailability of gas is not only jacking up graph of unemployment but it is also hitting exports hard and creating law and order situation as well. Therefore, for keeping industrial wheel on the move, gas supply should be the topmost priority of the government.
High markup rates are another area where a full concentration of concerned quarters is direly needed, Sheikh said adding markup rates are highest in Pakistan than the other countries of the region.
He said that interest rate in US is 0.25 per cent, in UK 1.5 per cent, in Canada 1.5 per cent, in Australia 4.25 per cent, in Japan 0.1 per cent, in China 7 per cent, in India 11.5 per cent, in Bangladesh 12.5 per cent and in Sri Lanka 9.75 percent. Interest rates would remain high until government continues borrowing to plug its fiscal deficit.