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The improvement is significant and visible

From SHAMIM AHMED RIZVI, 
Islamabad
Mar 11 - 17, 2002

Describing continued fiscal deficits as mother of all economic ills of the country, Dr, Ashfaque Hassan Khan, Economic Advisor to the Minister of Finance said that Pakistan was suffering from twin deficit — in our internal and external accounts — and instead of attacking the root cause, we resorted to ad hoc measures of meeting the gaps in our income and expenditure through borrowing both from domestic and foreign sources.

Dr. Ashfaque Hassan was giving a lecture on "The State of Pakistan's Economy", to the students of economics and business administration of the Preston University. He said that the deplorable state of economy was a result of many years of economic mismanagement and imprudent economic policies of the successive government, especially during the last 20 years, without any exception. All of them passed their time with ad hoc measures — obtaining fresh loans at a higher rate of interest to pay off previously secured maturity loans. A time came by the year 99 that we spent over 73 per cent of our revenues on debt servicing, leaving only 27 per cent for all other expenses, including defence. We had to borrow from domestic sources to run the affairs of the state. As enough borrowing was not available from our national saving, the state resorted to bank borrowing using its power and authority. Excessive borrowing by state adversely affected the liquidity of the commercial banks, leaving little to advance as credit to the private sector.

Explaining this vicious circle to future economists and economic managers of the country, Dr. Ashfaque said that non-availability of adequate credit from banks slowed down the economic activity and consequently the domestic investment declined. Foreign and domestic investment are complimentary to each other and fall in domestic investment resulted in shrinking of foreign investment. As a result unemployment increased and poverty level rose.

Continuing, the economic advisor said that the economy was near collapse and default seemed imminent when the present government took over. It took strong decisions to change the cycle and initiated various measures to start the healing process. "The wound is deep and it would take time to be completely cured. The healing process has, however, started", he added. The strong reform measures taken by the government and specially the recent happenings in the region in the wake of September 11 and Pakistan's bold and principled decision to join the world coalition, has immensely enhanced Pakistan's acceptability in the world community, leading to a better and sympathetic appreciation of its problems and genuine and sincere efforts of the government to make amends for the past mistakes. This has opened new windows for Pakistan and it is hoped that the country's economy will be on its feet in a few years time.

The improvement in economy is so significant and visible that even the worst critics of the government cannot deny it, Dr. Ashfaque said. Quoting facts and figures he said:

a. There has been no increase in the burden of foreign debts during the last 21/2 years. It was $38 billion in 1999 and it is the same today. (The total foreign debt stood at $ 43 billion in 1998, including the frozen foreign currency accounts. It was brought down to $38 million by converting dollars into rupee accounts.) previously, this burden was increasing by over $2.5 billion every year. It was $21 billion in 1990 and $43 billion in 1998.
b. Domestic borrowing, specially the bank borrowing, has been reduced considerably.
c. The country today has a foreign exchange reserve of over $5 billion (enough to meet six months import requirement) against $400 million in 1999 (hardly enough for two weeks).
d. As a result of drastic cut in state borrowing, the liquidity position of commercial banks has improved and they have enough funds to advance loans/credit to the private sector. This has improved in domestic investment. Economic activity is picking up.
e. In compliment foreign investors are also responding. There is significant increase in foreign investments in certain sectors, specially the oil and gas.
f. To meet the challenge of growing unemployment and poverty alleviation, the government has launched a multi-pronged strategy. The allocation for education, health, infrastructure like roads, bridges, water reserves and other job oriented projects has never been so high in the history of Pakistan as during the current year. Only last week, the Executive Committee of National Economic Council (ECNEC) approved 34 projects in public sector, involving an expenditure of Rs. 229 billion, which is an all time record.
g. The economy has received some jolts as a result of September 11 events. There is a shortfall of about 30 billion in the estimated revenues, mainly because of fall in imports and exports but these losses will be made up by grants committed by US and other countries. Out of the total commitments of $1.5 billion, about $800 million have already been received and the rest is in the pipeline.
h. Despite the difficult economic year because of bad agriculture due to drought, the fiscal deficit has been brought down to 5.2 percent from an average 7 per cent of GDP during the last about 20 years.
i. The rescheduling of Paris Club loans amounting to about $12 billion extending the payment period from 10 years to 35 years has brought much relief to the country. Now we are taking the matter of reducing the interest on these loans. There are strong indications that our requests will be granted.
j. Efforts are also on for write off of some petition of bilateral loans (there is no provision of write off of the loans obtained from IMF, World Bank etc.). US has already committed to write off $1 billion out of total $2.8 billion. Loans amounting $450 million are being negotiated for conversion to aid to our social action and poverty alleviation program.
k. The rupee has gained in value by about 12% and strengthened its position vis-b-vis the dollar and other international currencies.
l. There has been sharp increase (by about 70% ) in foreign exchange remittances from Pakistanis working overseas indicating their enhanced confidence in the country's economy.

Thanking Dr Ashfaque Hassan Khan for his enlightening and thought-provoking presentation on "The State of Pakistan's Economy", Dr. Abdul Basit, Chairman Preston Institute said his presentation was down to earth and, therefore, extremely interesting and edifying particularly for the participating students. He thanked R. Khan for his graciousness and for making it convenient to speak on a burning issue that was so central to the interest and concerns of every citizen of this country. As a token of appreciation, Chairman Preston Institute, Dr. Basit presented a plaque of the Institute to the guest speaker.