The Asian Development Bank (ADB) has reviewed the
progress of Pakistan's economy during the 2003-04. The Pakistan economic
update released by the ADB Islamabad office last week makes an
interesting reading. By any standard it is an objective assessment of
the situation describing Pakistan economy in 2003-2004 as a mixed bag of
success and failures.
One of the prominent feature of the ADB report is
that, unlike the documents and statements emanating from government
quarters which highlights only the positive achievement. This report
also records and bring to the public notice the negative aspects and
areas of failures in various sectors. The report also reveals some of
the deficiencies in the policies as well as in its implementation.
The economy's overall growth performance, according
to the ADB, showed a sharp improvement in 2003-04 with the GDP growth
rate increasing to 5.1 per cent from 3.5 per cent in the previous year.
The improvement with broad-based, with agriculture, manufacturing and
services, all recording higher growth and the trend is likely to be
consolidated in 2003-04. The fiscal deficit and inflation declined and
the current account surplus and foreign exchange reserves rose to
all-time high levels.
Another significant development was the sharp fall in
average lending rate from 13.1 per cent to 7.6 per cent per annum. As a
result of this unprecedented decline in interest rates and upsurge in
economic activity, borrowings by the private sector, including export
finance, shot up from Rs.37.7 billion to Rs.153.6 billion. There was
also a boom in the stock market and market capitalization almost doubled
However, while the economic fundamentals looked
promising, there was no dent in poverty or any acceleration in
investment. According to the ADB, the poverty level deteriorated from
30.6 per cent in 1998-99 to 32.1 per cent in 2001-02 despite a revision
of poverty definition to get the desired numbers. The government reduced
the standard per capita Recommended Dietary Allowance (RDA) from 2550 to
2350, it still yielded a poverty estimate for below the international
estimates. Although official unemployment rate was only 7.82 per cent,
hundreds and thousands of people were being added to the ranks of
unemployed every year due to the population growth rate of 2.1 per cent.
Gross fixed investment remained stagnant at 13.1 per cent while gross
national savings increased from 17.0 per cent to 19.2 per cent due
entirely to higher workers remittances from abroad. Domestic savings, on
the other hand declined from 16.1 per cent to 14.7 per cent. An
important observation in this context was that most of the investment
was not meant for new enterprises and private sector credit off-take
went mostly for working capital requirements. New money flows were
largely going to the stocks and real estate resulting in sky-high prices
of these assets and this may be a matter of serious concern in year's
time. There were also some signs of slackening of fiscal adjustment
effort due mainly to a 15 per cent hike in public sector salaries and
the continuing losses in public sector enterprises (PSEs), particularly
in the power sector.
The ADB also revealed some of the deficiencies in
development spending and its effectiveness. Spending under public sector
development programme and poverty reduction strategy were very low
during the first three quarters, but large scale releases in the fourth
quarters to show higher utilization compromised the quality of delivery
and resulted in leakage. Giving an example of the poor quality of
spending and its outcome, the ADB country representative, Marshuk Ali
Shah said that only 30 middle schools were operational out of 300
schools funded by his organization during the last three years. Another
6000 facilities funded by the ADB were also not working and similar was
the fate of assistance from other donors.
Most of the observations of the update are based on a
proper assessment of the prevailing situation and need to be carefully
analyzed by the policy makers in order to rectify the faults in various
areas of economic management. It is good to see that economists in the
ADB have not been unduly influenced by the government's publicity of
"all is well and take-off stage" but have applied themselves
to determining the emerging weaknesses that retard of reverse the
process made on various fronts so far. Some of the facts highlighted by
the ADB need urgent attention. For instance, it has been made abundantly
clear that it is not just the lack of resources that hit the economy but
their poor management and frequent shortfalls in the utilization of
available funds in the public sector that further aggravate the
vulnerabilities of the economy.
For instance Pakistan could utilize only one per cent
of the loan advanced by the ADB for flood protection projects since
1997. The loan sanctioned of an amount of $100 million and the projects
identified were badly needed. Director of the Asian Development Bank,
Marshuk Ali Shah, in a meeting with Minister for Water and power, Aftab
Ahmad Khan Sherpao, here asked for expeditious loan utilization to
obtain results in prescribed time. ADB is providing $100 million
interest-free loan with only one per cent service charges for Floods
Protection Projects approved on November 13, 1997. It was required under
the conditions of the loan that it should be utilized by 2005, but after
a lapse of 74 per cent time only about one per cent or $1.244 million,
has been utilized so far.
According to another report, Pakistan has dropped 13
World Bank projects worth $2.3408 billion, including bank's contribution
of $1.0317 billion during 1997-2001.
The reasons of dropping the projects were inter
government disharmony and delay in implementation of agreed reforms. A
few of these projects are again under consideration of the government
and the bank might include these in the coming assistance.
However, the bank has shown reluctance to work with
the government departments which are very slow in implementation. Bank
officials are of the view that sometimes the response from a government
office comes after two months, which should come in a week.