Pakistan's Economy Able To
Resist The Odds. GDP growth at 3% is a significant achievement
By SHABBIR H. KAZMI
June 24 - 30, 2002
During this past week three important documents were
released on Pakistan economy: 1) Third Quarter Report by the Central
Bank, 2) Economic Survey of Pakistan and 3) Federal Budget for financial
year 2002-2003. All these indicate reasonably good performance despite
September 11, 2001 incident and subsequent events. However, some of the
critics of present government are trying to undermine the performance.
After the September 11 incident even most of the
developed economies of the world came under extensive pressure. All the
governments are trying hard but the process of recovery is very slow.
The recent recession has been termed as synchronized global recession.
In this backdrop the expectations for achieving over 3 per cent GDP
growth rate is a credible performance. It sounds even better due to
shortage of water and tension on Line of Control and Indian border. The
factors indicating the resilience of Pakistan's economy are: 1) forex
reserves exceeding US$ 6 billion, 2) over US$ 2 billion surplus current
account, 3) improving balance of trade, 4) increasing foreign portfolio
investment, 5) on going and successful process of privatization and 6)
increasing quantities of exports.
The GDP growth has been driven mainly by better
performance of agriculture and large-scale manufacturing. Improvement in
current account has been due to about 8.5 per cent fall in import bill.
The fall in imports has been due to lower POL prices in the global
markets, virtually no import of sugar and an overall reduction in import
bill of food items. Pakistan was able to contain fall in exports by
exporting larger quantities as well as POL products. With the greater
access provided by the European Union and revival of the US economy
export of textiles and clothing are expected to improve further.
However, the key issue faced by the GoP is inability
to improve revenue collection. In the budget for next financial year GoP
aims at expanding tax net, imposing General Sales Tax on more items.
Despite the plan to increase revenue collection there seems to be no
strategy to recover tax on income from agriculture. It is a rather
tricky issue and most of the work has to be done by the provincial
governments. To overcome shortfall in revenue the GoP aims at
restructuring tax collection regime and encouraging more and more people
to avail the facility of self-assessment scheme.
To some of the critics, sale of Pak Saudi Fertilizer
Company (PSFL) and bidding for United Bank Limited (UBL) are not
significant events. The critics must realize that both the bidding were
held in post September 11 period when global investors were busy in
efforts to overcome their own problems. Efforts were made by some people
to block the sale of PSFL which did not succeed. As regards UBL, certain
groups are trying to create an impression that the bidding was not
transparent. However, the real achievement of Privatization Commission
is that it was not only able to solicit bids but also at attractive
prices. The keen interest of local investors also indicate their faith
in Pakistan's economy. One should not forget that it is confidence of
local investors that gives courage to foreign investors to look and
subsequently invest in that market.
It is also a perception that Pakistan's economy is
not doing well because the benefits have not trickled down to citizens.
This impression is not correct. The resilience of the economy is evident
from increase in the quantities of major exports. This can only be
achieved when exportable surplus are available and/or manufacturing
units not suffering from lower capacity utilization. During the ongoing
financial year virtually there was no import of sugar and fertilizer was
exported, though in small quantity only.
Another factor exhibiting the resilience of economy
is performance of equities market, indicating about 47 per cent increase
in market capitalization with the beginning of year 2002. The KSE-100
index was around 1273 points at end December 2001 and touched 1931 point
on March 14, 2002. The key factor contributing to this was the net
inflow of portfolio investment of US$ 50 million as compared to a net
outflow of US$ 32 million in the corresponding period of last year.
Analysts attribute this performance to capital market reforms. These
included, introduction of T+3 settlement system, stringent following of
capital adequacy requirements and changes in COT rules.
It may not be wrong to say that the forces which do
not wish political and economic stability to prevail in Pakistan keep on
striking. Be it the killing of French engineers or blast near the US
consulate, the aim is always to create disruptions. The strength of
Pakistan's economy is that it has withstood all such acts. If the
conditions are more conducive, the output could be still higher.