Pervez Hassan's address at a HIMS seminar
Aug 30 - Sep 05, 1999
By SHABBIR H.
Dr. Pervez Hassan,
former vice president of World Bank, said that during the last decade Pakistan witnessed a
virtual decline in its GDP growth rate. This came down from an average of 7 per cent to
around 3 per cent per annum in 1998-99. The main reason for the decline in growth rate is
persistent reduction in development expenditures.
He was addressing the students and faculty
members of Hamdard Institute of Management Sciences (HIMS) of Hamdard University.
He further mentioned: "For the
decline in GDP growth rate the successive governments of the country are responsible. The
mounting external debts and debt servicing, defense expenditure and dependence on external
resources to meet annual expenditures are the main causes of reduction in development
expenditure. The GDP growth during the regime of Zia-ul-Haq was almost double the rate
achieved during the tenure of various elected governments. However, it was a common
practice during Zia regime to sweep problems under the carpet and also that during his
tenure Pakistan got exceptionally large amounts as aid and grants."
Referring to old days, Dr. Hassan said:
"It is true that during the last ten years, the geo-political condition of the region
has changed. Aid/grants and soft-term loans are no longer available and bulk of the loans
now carry high interest rates. Pakistan is forced to borrow more to meet its debt
servicing obligations. But, the real cause is that the country has not been able to
utilize aid and soft-term loans efficiently. Even today the priorities are not fixed
properly. Therefore, billions of dollars, being spent on infrastructure projects, may not
help in any substantial way to accelerate GDP growth rate.
Referring to poor progress of economy, Dr.
Hassan said: "Pakistan's export base is not diversified and the country is heavily
depended on external resources to overcome trade deficit problem. The current situation
demands immediate redefining of the priorities and complete restructuring of the system.
While various industry specific and area specific incentives have failed in broadening the
industrial base, they also proliferated inefficiency in the industrial sector. The result
of this wide-spread inefficiency is that Pakistani manufacturers have lost the comparative
advantage and they are not able to compete in the global markets.
The cotton, which was available at
subsidized rates in the past, now has to be bought at international prices. The unchecked
growth of spinning sector forces Pakistan to export nearly half of the quantity of yarn
produced. While the spinners were provided all the conceivable incentives, weaving and
processing sub-sectors were ignored to a large extent. Even the spinners, despite enjoying
all the incentives, have failed to undertake BMR and integrate their units upwards. The
result is that Pakistan still exports coarse counts of yarn, grey fabrics and low quality
Another phenomena affecting the
manufacturing sector is poor capacity utilization in various industries. Not only textile
industry suffers from low capacity utilization, PSF, sugar, cement and engineering
industries have surplus capacity. This results in higher cost of production and
manufacturers are not competitive.
Another reason is despite announcing very
attractive policies to attract investment, bulk of flow of the foreign equity has remained
confined to a few sectors. Poor implementation of policies and existence of various
irritants, though said to be very small, have been considered to be various hurdles. The
frequent changes in policies, adhocism and short-sightedness, not only irritates the
foreign investors, but local investors are also reluctant to invest in projects having
long pay-back periods.
Pakistan has been a highly protected
market since its inception. The process of globalization and opening-up of Pakistan market
has further highlighted the prevailing inefficiencies. To compete in the global markets,
local manufacturers have to be cost competitive and their products have to be of superior
quality. With the gradual phase-out of textile quota, unless Pakistani manufacturers
optimize their expenditures and improve quality standards, they would find it very
difficult to compete. Even those countries which do not produce cotton have emerged
Another important factor is that the yield
of various crops in Pakistan in nearly half of the yield achieved in India which also has
similar weather and soil conditions. Even various land reforms have failed in utilizing
all the cultivable land. Water logging and salinity is fast eroding the fertile land.
Therefore, unless efforts are made to improve the yield Pakistan can neither become self
sufficient in food nor enhance proceed from cash crops.
The concluding remarks of Dr. Hassan were,
"There is a need for improved corporate governance not only in the private sector but
also in the public sector and the bureaucracy. Tax rates in the country cannot be further
increased. The situation demands expansion in tax net. The laws of income tax should not
be discriminatory. Any income, be it from manufacturing and trading or agriculture, should
be taxed. Pakistan should not delay implementation of tax on income from