Pakistan's economy is now more stable, economic policies are transparent and predictable


May 19 - 25, 2003




Although independent economist do not endorse the claim made recently by President Musharraf that Pakistan economy had achieved a take off stage, there is almost a consensus that what has been achieve by his government specially in the economic field, is spectacular. However, the take off stage, though in sight is still far away.

As a matter of fact President Musharraf government, despite facing many serious crises, has achieved much more during the last three and half years as compared to any government in the recent past. His government may have failed to achieve desired results in some areas, but nobody can deny them the credit for more than satisfactory performance in many other areas. Even the worst crises of government concede that its performance in the economic field had been commendable.

Unrealistically high expectations were awakened after the dismissal of Nawaz Sharif government on October 12, 1999 and when these expectations remained unfulfilled, frustration set in. People expected a revolution which has not taken place. The decline in economy has certainly been checked with visible signs of improvement 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 confidence specially of investors is still to be restored. Three years ago a ruthless accountability of corrupt holders of public offices, and crack down on smugglers was on top of the agenda of General Pervez Musharraf, but this process has been slow and to some extent selective while from his government people expected an aboveboard 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 minister, 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.



President Pervez Musharraf has conducted himself with a transparent modesty and honesty in a country which has never tested or exercised so much of freedom. It is significant that this government has been the least criticized or castigated in the last four decades. 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.

The most testing time for Musharraf government came when the world woke up to a different reality on September 12. With the international agenda shifting from non-proliferation 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 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 second test come when US attacked Iraq during which the civilian government of President Musharraf conducted itself with dignity.

As to whether or not Pakistan has reached the take-off stage, it is a well-established fact that the decade of the 1990s was a decade of lost opportunities for Pakistan. While many nations made progress, Pakistan lurched from one crisis to another, mainly of its own making. As a result of weak macroeconomic management, lack of commitment and courage to undertake difficult structural reforms, and the deteriorating state of decision-making, Pakistan, at the fag end of the 1990s, was confronted with serious macroeconomic difficulties.

Notwithstanding a series of domestic and external shock such as a catastrophic drought, the events of September 11 and their aftermath, and the events of December 13 leading to the military build up by India and the US attack on Iraq Pakistan's economy has made significant progress during the last three and a half years as established from the following facts and figures.

Pakistan's economy is now more stable, economic policies are transparent and predictable; confidence of the private sector is restored to a larger extent and expatriate Pakistan are bringing their capital back into the country. Fiscal deficit which averaged 7.0 per cent of GDP for two decades is expected to decline to 4.6 per cent in the current fiscal year (2002-2003). Domestic debt which was growing at an average rate of 24.0 per cent and 16 per cent per annum during the 1980s and 1990s, respectively has slowed to 1.0 per cent in 2002-03. Domestic debt as percentage of GDP has declined from 52 per cent in 1999-2000 to 43 per cent in 2002-03. Declining trend in development expenditure has been arrested. As opposed to 3.0 per cent of GDP, development spending is estimated at 3.3 per cent in 2002-2003. CBR tax collection has increased by Rs.152 billion during the last four years as opposed to Rs.82.5 billion in the previous four years. As opposed to an average increase of 4.6 per cent per annum during 1996-99, CBR tax collection has grown at an average rate of almost 14 per cent per annum during the last three years (excluding the abnormal year of 2001-02 when tax collection grew by only 2.5 per cent as a result of the events of 9/11). CBR tax collection in the current fiscal year has remained above the target so far (Rs.350.3 billion as against the target of Rs.349 billion in July-April 2002-2003).



Industrial prodcution is up by 8.0 per cent during July-February 2002-2003. Investment is likely to rise to 16 per cent of GDP and economic growth is projected at 4.5 per cent higher than the average of last three years (3.3 per cent during 1999-2000 to 2001-2002). Both exports and imports have picked up despite uncertain global environment. Exports are up by 20 per cent and imports are up by 23 per cent during July-March 2002-2003. Worker's remittances were around $1.0 billion in 1998-99. This is likely to reach $4.3 billion by end-June 2003 all time high in the country's history.

Pakistan's external debt and foreign exchange liabilities which reached at unsustainable level by 1998-99 have started moving towards sustainability. Pakistan's total external debt and liabilities have declined by $3.0 billion from $38 billion to $5 billion. As percentage of GDP the external debt and liabilities stood at 64 per cent in end-June 1999, declined to 60 per cent in end June 2002, and are projected to decline to 50.4 per cent by end-June 2003. During this period, Pakistan added $9.4 billion in its foreign exchange reserves. Hence, Pakistan has not only succeeded in reducing its debt liabilities by $3.0 billion but has also succeeded in adding $9.4 billion in its reserves. Pakistan's net debt and liabilities (total external debt and liabilities minus net reserves of the SBP) stood at $37 billion in end-June 2000 and is expected to decline to $26 billion by end-June 2003 a reduction of $11.0 billion in three years, as percentage of GDP, it is projected to decline from 60.7 per cent in end-June 2000 to 37.4 per cent by end-June 2003. Pakistan's external debt burden has also declined significantly. External debt and foreign exchange earnings stood at 335.4 per cent in end-June 1999. It is expected to decline to 193 per cent by end-June 2003. Since, Pakistan's foreign exchange reserves have reached a record level of about $10.5 billion and the government is planning to pay back expensive debt ahead of the time keeping a safe margin of $10 billion.

While nobody dispute that all key economic indicators have been showing steady improvement, there is, however, a sense of disappointment that the benefits of these gains have not started tricking down to the poor and have-nots. As one economic analyst aptly commented that the economy was being painted as rosier while people were looking paler. Somehow the improvements in economic indicators have failed to translate into a corresponding beneficial impact on the economic health of the ordinary citizens. Poverty is on increase, unemployment is rampant and fixed income group is living a miserable life. There is no doubt that poverty level has increased and per capita income has come down. Worst bit has been the class of senior citizens who were living on their pensions and past savings. The rate of profits on saving schemes has been drastically cut thereby reducing their income by 40 to 45 per cent. The rate of inflation given by the government at 4 per cent is generally not believed as it is not supported by their experience while shopping.



On the unemployment front the government must do a lot more to save the poorer sections from absolute destitution. In fact, if it takes in hand a good number of employment generating physical and social infrastructure projects, it will not only expand the absorption capacity of the economy but in a way also speed up the reform process. Meanwhile, it could also make plans to distribute the resultant hardships of the reforms equitably across various sections of the population.