INTERVIEW WITH DR. KHALIDA GHAUS, MANAGING DIRECTOR, SOCIAL POLICY & DEVELOPMENT CENTRE
Sep 17 - 23, 2012
Prof. Ghaus- former Director, Centre of Excellence for Women Studies, Chairperson (Department of International Relations, University of Karachi), and Pakistan Centre for Democracy Studies is currently serving as the Managing Director, Social Policy and Development Centre (SPDC), Karachi. She has a Phd. In International Relations. Dr. Ghaus has a teaching/ research experience of 28 years and has extensively worked on foreign policy, development, and gender issues. Her latest work includes; 'The changing Security Spectrum of South Asia: Consequences for SAARC', and 'Issues of Cultural Identity, Challenges Confronted by Muslim Societies: From Violence to Political Positivism'. Author of books and monographs she has extensively participated in seminar/conferences and has given lectures in Canadian and American Universities besides attending the sessions of the UNCHR. She has been actively involved in the Neemran process (Track II initiative). Dr. Ghaus has been involved in the policy- making (both) with the Federal and Provincial Governments on gender-related issues and is a member of Several Technical Committees, Public Policy committees and Advisory Committees, besides, being a member of several professional bodies. Whereas, Social Policy and Development Centre (SPDC) provides decision makers in the government, private sector and civil society organizations with a multi-disciplinary approach towards issues of development and growth. A non-profit, policy research centre established in April 1995 as a limited company based in Karachi, SPDC has made significant intellectual contribution in placing issues of pro-poor growth and social development on Pakistan's policy-making agenda.
PAGE: HOW WOULD YOU COMMENT ON ECONOMIC STABILITY IN PAKISTAN?
DR. KHALIDA GHAUS: Economic stability in a country can be gauged by the performance and stability of its macroeconomic indicators at the first place. Gross Domestic Product (GDP) growth has been stuck at a level, which is half of the level of Pakistan's long-term trend potential of about 6.5 percent per annum and is lower than what would be required for sustained increase in employment and income and a reduction in poverty. The growth in GDP shows persistence fluctuation since 2007-08. In 2006-07, it was 6.8 percent but in the subsequent years it did not cross 3.7 percent and remained as low as 1.7 percent in 2008-09.
The GDP growth for 2011-12 was projected at 4.2 percent on the back of 3.4 percent growth in Agriculture, 2 percent growth in LSM and 5 percent in Services sectors. However, the torrential rains in Sindh province during August 2011 compelled the government to revise its GDP growth target to 3.6 percent on the basis of 2.5 percent growth in Agriculture, 1.5 percent in LSM, and 4.4 percent growth in services sector.
PAGE: ?WHAT IS YOUR VIEW ON INDUSTRIAL PRODUCTION OVER THE PERIOD OF ONE YEAR IN PAKISTAN?
DR. KHALIDA GHAUS: During last two years, growth in services sector has helped support the overall economic growth. No doubt, the services sector has its own importance in economic growth of a country but in Pakistan the agriculture and industrial sector have prime importance as they absorb blue-collar worker - a member of the working class who performs manual labour involving both skilled and unskilled in agriculture, manufacturing, mining, construction, mechanical, maintenance, technical installation and many other types of physical work. Growth in agriculture sector, which was 6.3 percent in 2005-06 has been fluctuating and has not able to reach 2005-06 levels. Growth in large-scale manufacturing that constitute 47 percent of the industrial sector remained negative 8 percent in 2008-09 and less than 2 percent in 2010-11.
PAGE: YOUR VIEWS ON PUBLIC FINANCE IN PAKISTAN?
DR. KHALIDA GHAUS: The economy has witnessed numerous domestic and external shocks from 2007 onwards. The sharp rise in international oil and food prices, the internal security hazards brought on by the campaign against extremism and the repeated natural disasters in the form of successive floods and heavy rains of 2010 and 2011, the difficult security situation and the energy crisis have buffeted the macroeconomic situation and drastically impacted the economic growth.
Another important indicator to test the macroeconomic stability is the extent of investment in the country. Investment in the economy depicts the picture of stability indicating investor's confidence in investing money. Over the last four years growth both in private and public sector it has been negative indicating a decline in the amount of investment. The foreign direct investment has also shown a persistence decline since 2008-09.
The inflation which explains the rate of change in price level remained in double digits since 2007-08 reaching alarming levels during 2008-09. The rate of increase in overall consumer price index was as high as 21 percent in 2008-09 with 23.7% in food prices, 20.4% in energy prices and 38.9% in transport prices - all belongs to lower income group.
There have been some successes. Pakistan has been able to resist the pressures and improve its performance in some key areas such as inflation the pace of which has been on declining trend for the last couple of years (11 percent in 2011-12), the increase in exports and revenue generation and maintenance of comfortable foreign exchange reserve levels. The focus on reforms and austerity through the control of public expenditures despite the difficulties has continued.
PAGE: YOUR COMMENTS ON GOVERNMENT SUPPORT FOR PRIVATE SECTOR IN PAKISTAN?
DR. KHALIDA GHAUS: Though there has been improvement in export growth after a decline of 7 percent in 2008-09, the figures for 2011-12 (Jul-Apr) do not indicate any growth in exports. Though the growth in imports has declined, the trade balance depicts a growth of 49 percent during 2011-12 due to no growth in exports. Group-wise analysis of export growth suggests that textile sector constituting over 60 percent of Pakistan's exports depicted a decline of 10 percent in 2011-12 compared to 2010-11. Except the exports of raw Cotton that increased by 32.3 percent, all the items in textile exports depicted a decline - cotton yarn (-22.8 percent), cotton cloth (-5.4 percent), knitwear (-3.1 percent), bed wear (-13.8 percent), towels (-8.4 percent), readymade garments (-5 percent).† However, the exports of the "other manufacturers" witnessed an impressive growth of 19.9 percent during July-April 2011-12 over the same period last year. Its share in overall exports also increased by 3.9 percentage points and stood at 20.0 percent. Engineering goods remained the prominent categories among the positive contributors to the overall increase in "other manufactures" group. The overall increase in "other manufactures" group was offset to some extent by the negative growth of carpets (5.9 percent), leather garments (15.6 percent) and cutlery (6.3 percent) during July-April 2011-12. The export category of carpets, rugs and mats declined due to increased competition from the neighboring countries of Pakistan.
Major contributors in import growth in 2011-12 are petroleum products (70 percent) and fertilizer (116 percent) which does not seem to be curtailed. Therefore the only option is to concentrate on increasing exports that by creating conducive environment like availability of energy at affordable price and law and order situation. The government seems clueless in addressing these problems that has affected the production in the economy.
Pakistan's fiscal imbalances, i.e. the difference between government revenues and government expenditure are a source of macroeconomic stress. Financing fiscal deficit by heavy borrowings from the Central Bank and rising public debt have created inflationary pressures, giving rise to high interest rates and crowded out private sector credit.
In Pakistan, a low, and declining, Tax-to-GDP ratio, and an elevated? and rising - public debt stock has imposed a hard constraint on the size of fiscal stimulus that can be provided to the economy. Countries like China, Germany, UK and US entered the crisis with greater fiscal space to expand, including more favourable levels of deficits, public debt, contingent liabilities and interest rates.
The nexus between low tax revenue collection, the fiscal deficit, the stock of public debt, and the future path of growth in the economy needs to be examined. With Pakistan's tax collection amounting to around 9?10% of GDP as compared to 12.9% for India, and 14.2% for Sri Lanka, for example, the additional expenditure absorbed in the budget on account of any fiscal stimulus measure, would necessarily imply an increase in the stock of public debt.
Looking at the structure of budgetary expenditure, debt servicing (including repayment of foreign loans) is expected to account for 27% of total expenditure for the current fiscal year. Given the rigidity of some of the other large expenditure heads, such as security spending, any increase in debt servicing requirements will necessarily encroach on other areas of spending, including possibly development spending, or expenditure on vulnerable segments of the population. Clearly, this would be an undesirable situation, as it could lead to reducing Pakistan's longer term growth prospects, or reducing support for the most vulnerable groups in society - the exact opposite of the intended result.
There needs to be a widening of the tax base, bringing every sector and every person earning above the threshold level under the tax net, rationalising and prioritising of expenditure bringing the budget deficit in the coming years.