The improvement is significant and visible
From SHAMIM AHMED
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
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
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
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.