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Information Technology  THE NEW ECONOMIC



The present government, despite facing many crises, has achieved much more in 30 months

June 03 - 09, 2002

Viewed dispassionately the overall performance of the present government during the past about two and half years has been more than satisfactory. As a matter of fact the present government, despite facing many crises, has achieved much more in 30 months compared to any government in the recent past. The present government may have failed to achieve desired results in many areas but nobody can deny them the credit for more than satisfactory performance in some other areas.

Unrealistically high expectations were awakened after the dismissal of Nawaz Sharif government on Oct. 12, 1999 and when then expectations remained unfulfilled, frustration set in. People expected a revolution which has not taken place. The decline in economy has certainly been checked but it has not taken a turn around and the fruit of the improvement has not yet reached the common man. The law and order situation has improved but the conditions are not yet normal. Confidence is still to be restored. Two and half year ago a ruthless accountability of corrupt holders of public offices, and crack down on smugglers was on top of the agenda of Gen. Pervez Musharraf, but this process has been slow while from a present government people expected fast and swift action. At the same time, however, it cannot be denied that it is for the first time in the history of this country that the accountability process has been initiated and action taken against prime ministers, former Chief Ministers, Former Federal and Provincial Ministers, former Senior most officers of the armed forces, former senior most civil service officers, well-known businessmen, prominent landlords from all parts of the federation. In fact for the first time this process has started from the top-most to the lowest, including a Patwari.

The most testing time for Musharraf government came when the world woke up to a different reality on Sept. 12. With the international agenda shifting from nonproliferation to war on terrorism, Islamabad found itself again in the spotlight playing a role it had played before. Just as suddenly as the world priorities changed, so did Pakistan's short of completely severing its ties with the Taliban Regime, Islamabad had been supporting for the last six years. Pakistan has all but taken a u-turn in its Afghan policy. Finding itself between the proverbial devil and the deep sea, Pakistan had few options not to go this way. The credit for putting Pakistan once again on the world map in a position of respect and honour would have to be given personally to President Pervez Musharraf. There is no mystique to his qualities of leadership. It is simply honesty of purpose, commitment to values, respect for what is good, rejection for what is bad and the capacity to carry his colleagues with him through thick and thin.

You may find the government wanting in many fields put the improvement in economy is so significant that even the worst critics of the present government cannot deny its achievement in this sector. The Resident Director of Asian Development Bank (ADB) for Pakistan, while speaking on Pakistan's economy at NIPA in Islamabad last month said that "continuous increase in the inflow of ADB financial assistance to Pakistan(from $500 million to 1 billion in 2 years) was a manifestation of Bank's confidence in the economic policies of the present government.

There are not two opinions that the continued fiscal deficit is the mother of all economic ills of the country. Pakistan was suffering from twin deficit. In our international and external accounts for the past about 20 years and instead of attacking the root causes, we resorted to ad hoc measures of meeting the gaps in our income and expenditure through borrowing both from domestic and foreign sources.

The deplorable state of economy was a result of many years of economic mismanagement and imprudent economic policies of the successive governments especially during the last 20 years, without any exception, All of them passed their time with ad hock measures obtaining fresh loans at a higher rate of interest to pay off previously secured maturity loans. A time came by the year 1999 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. Non-availability of adequate credit from banks slowed down the economic activity and consequently the domestic investment declined.

Foreign and domestic investment are complementary to each other and fall in domestic investment resulted in shrinking of foreign investment. As a result unemployment increased and poverty level rose.

Economists agree on the point that the economy was near collapse and default seemed imminent when the present government took over. It took strong decision 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. The strong reform measures taken by the government and specially the recent happenings in the region 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 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 significant improvement in the economy which has been noted and fully appreciated by the donor agencies like World Bank, IMF, IFC and the ADB can be judged from the following facts and figures.

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 billion 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.

Domestic borrowing, specially the bank borrowing, has been reduced considerably.

The country today has a foreign exchange reserve of over $5 billion (enough to meet over six months import requirements) against $400 million in 1999 (hardly enough for two weeks).

As a result of drastic cut in state borrowing, 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.

Foreign investors are also responding. There is significant increase in foreign investments in certain sectors, specially the oil and gas.

To meet the challenge of growing unemployment and poverty alleviation, the government has launched a multi-pronged strategy. The allocation of education, health, infrastructure like roads, bridges, water reservoirs and other job-oriented projects has never been so high in the history of Pakistan as during the current year. Only last month 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.

The economy has received some jolts as a result of September 11 events. There is a shortfall of about Rs. 40 billion in the estimated revenues, mainly because of fall in imports but these losses will be made up by grants committed by the US and other countries. Out of the total commitments of $1.5 million about $900 million have already been received and the rest is in the pipeline.