The Finance Minister, Shaukat Aziz is the lucky
Finance Minister of Pakistan to have the honour to say good-by to
International Monetary Fund (IMF) during his visit to Washington last
week. He told IMF Chief that Pakistan was not interested in further
extending the loan agreement under poverty alleviation and growth
facility (PRGF) expiring by the end of this year.
Earlier he had told the National Assembly that the
Government of Pakistan had decided that it would not enter into any
financial agreement with the IMF in future as country's economy was on
sound footing and strong enough to be self-reliant. He said that the
sound economic policies initiated by the then Chief Executive Gen.
Pervez Musharraf in the year 2000 and later followed strictly in letter
and spirit by the elected government of Prime Minister Zafarullah Khan
Jamali without any interruption has made the country economically strong
enough to break the begging bowel which appeared to be only a dream a
few years back. We are now free from the shackles of the likes and
dislikes of IMF and the World Bank, he declared.
You may differ with many policy initiatives and feel
dissatisfied with government performance in different sectors but you
cannot deny President Musharraf and Prime Minister Jamali the credit of
the marketed improvement in Pakistan economy during the last four years.
As a matter of fact what has been done in the economic field is enough
to cover the unsatisfactory or not up to the mark performance of the
present government in some other sectors. Declaring that the fiscal year
2004-05 will be a year of common man, the Finance Minister gave the good
news that the GDP growth during the current fiscal year ending June 30,
2004 may touch nearly six percent instead of 5.3 as estimated in the
Going by what the minister declared, it would seem
that the Musharraf's Government has not wasted its four-and-a-half-years
in power twiddling its thumbs; in fact, it has made the most of this
opportunity by enhancing and improving the overall conditions of the
national economy and worked hard towards the development as well as the
welfare of the people of Pakistan for the sake of our suffering
majority, which has been subsisting below the poverty line. It is
sincerely hoped that our dependence on foreign debts, which were running
higher 40 billion dollars, consuming a large part of the national
revenue for paying the interests on these loans, is will soon be over
and we will have enough in the national coffers for us to live
honourably and comfortably.
Because of increase in production of all the major
agricultural crops except cotton, plus a robust growth of nearly 15
percent expected to be registered by the manufacturing sector. It is
hoped that the per capita income would go up from the present level of
$480 to $600 by the end of this year and by virtue, which Pakistan would
no longer remain a low-income country (LIC).
In the international trade sector, it is expected on
the basis of performance during the last eight months that exports would
grow in 2003-04 by nearly 15 percent.
Since, exports were generally higher during the last
2-3 months of the fiscal year, the export target of $12.1 billion, fixed
for the current fiscal year would be easily achieved. However, this
remarkable performance in the export sector was likely to be marred by
government's failure in containing the trade deficit to $0.7 billion, as
per the target fixed for it at the start of the current financial year.
During the last 8 months, imports galloped at the rate of nearly 17
percent and it was feared that the trade deficit might cross the $2
billion figure, at the end of the financial year. An unfavourable trade
balance of the above magnitude may not pose any serious problem at
present, due to a comfortable balance of payment (BoP) position.
However, in the long run, government's failure to control the country's
chronic trade deficits could create innumerable problems for Pakistan.
It is, however, satisfying to note that rise in import in due to import
of machinery and raw material and not on consumer's items. It in itself
is a sign of growing industrial activity.
In addition to the growing trade deficit, income from
workers remittances had, also registered decline of nearly 11 percent
during the current year. Income from the source was expected to go down
to $3.6 to $3.8 billion from $4.23 billion recorded last year.
Nevertheless, despite the persistent trade deficit
and decline in income from workers remittances, the external sector was
no-doubt still a source of strength for the economy. The country's
foreign exchange reserves stood at above $12 billion in March 2004.
Pakistan has recently made repayment of $1 billion of its expensive debt
to the ADB and had collected $500 million by floating its Eurobond in
the international market. The credit rating of Pakistan has considerably
improved in the recent months and the same is, at present, comparable
with that of Indonesia and Philippines. If the government's expectation
regarding a 5.8 to 6 percent increase in the GDP growth during the
current fiscal does materialize, public debt as a percentage of GDP
would go down further, at the end of the current financial year.
The government has succeeded in maintaining price
stability during the last 4 years and the inflation rate has been
between 3.3 to 4.4 percent during this period. However, during the
current financial year, prices of a number of essential commodities such
as onion and tomato, vegetable ghee, meat and wheat/wheat flour have
come under-pressure. In particular, wheat and wheat flour have been in
short supply and selling at higher prices since January. According to
press reports, wheat flour had been selling in certain parts of Karachi
and Hyderabad at Rs. 15 to 17 per kg until the first week of March.
Since the government was of the view that the situation was inter-alia
attributable to lower quantities of wheat procured last year, it had
decided to procure as much as 6 million tones of wheat during the
In addition to food items, the price of mild steel
bars and cement, which are used in the construction activities, have
also increased recently. The price of petroleum and petroleum products,
also, stand at a higher level reportedly because of increase in the
international crude prices in the recent months.
In view of the position explained above, the food and
the fuel groups of the consumer price Index (CPI) might come under
pressure. Similarly, in the wholesale price index (WPI), the food, fuel
and lubricants and building materials groups were expected to show an
upward trend. It is feared that the inflation rate (as measured by the
(CPI) may exceed 5 percent during the current financial year, while the
WPI may register an increase between 5 to 10 percent. In addition to
inflation, poverty and unemployment may remain a problem area in the
current fiscal, also. According to independent economists, the
unemployment rate has gone up from 7.82 percent in 2002-03 to 8-9
percent during the current financial year. In the same way, the poverty
situation also appeared to have worsened instead of showing improvement.
Is it not ironical that while Pakistan's per capita income is expected
to rise from $480 to $600 during the current financial year, no marked
improvement is discernible in the condition of the poor, throughout the
length and breadth of the country.
Likewise, improvement in the education and health
sectors is also likely to remain marginal, at best, during the current
financial year. As long as the government was content by taking
perfunctory measures in the social sector, no major change in the social
sector could be brought about. For real change, a determined effort and
targeted measures together with a monitoring mechanism were required.
One of the most remarkable achievements of the
government is that it has succeeded in boosting its revenue collection
from nearly Rs. 300 billion to Rs. 500 billion during the last 4 years.
On the other hand, the government expenditure on debt servicing has gone
down considerably inter-alia due to the rescheduling of a part of the
country's external debt. As a result, the government has been able to
increase budget allocation for its public sector development programme (PSDP)
to Rs. 160 billion for the current financial year. It was expected that
with the higher size of the PSDP and a massive amount available for
poverty alleviation, we would able to bring about marked improvement in
the poverty and unemployment situation.
The situation with regard to local and foreign
investment is not a happy one. Despite the optimism shown by the
government in this regard, foreign investment has reportedly registered
a decline of 43 percent during the first 6-7 months of the current
financial year, as compared to the corresponding period of last year. As
regard local investment, the economic team of the government was of the
view that the 23 percent increase in the import of machinery together
with increase in credit to the private sector from less than Rs. 100
billion last year to Rs. 225 billion during the current financial year
so far clearly shows that local investment during the year has picked
up. In case the above-mentioned assumption is correct, that would
certainly be a welcome development. However, the government would be
well advised to collect details about the ultimate use of imported
machinery, raw material and utilization of credit by the private sector,
in order to be able to present the factual position before the public.
It was perhaps a moment, (while reviewing the
economic program) of truth for the Finance Minister, when he maintained
that Pakistan could not overcome the challenges of poverty reduction,
increase investment level and creation of employment opportunities
despite macroeconomic stability. This is the first time that such an
important government official has publicly accepted the government
failure in its well pronounced goals at the conclusion of one year of
the Jamali-led government are extension of the earlier policies, it can
be inferred safely that while the last four years saw considerable
improvement in the macroeconomic stability of the government, they fell
short of seeing any tangible improvement at the popular level. It is in
fact a failure in the achievement of the ultimate goal as the rational
for all economic changes in the final analysis is the well being of the
people at large.
In spite of strong rationale for tacking poverty
through direct programmes, a closer look would reveal that the lack of
investment, as all other programmes of tackling poverty through direct
programmes will remain limited in domain and can hardly encompass all
the impoverished people of the country. It is, therefore, prudent that
facilitation of domestic and foreign investment in the country should
remain pivotal to economic decision making in the country. As the
private domestic and foreign investors feel shy, it is high time that
the government should take the lead and bring about significant increase
in its development expenditure. The housing sector has rightly been
classified as an area of investment and the policies should continue in
future as well. Once the effects of government policies started yielding
results, the level of investment by private sector will rise as well and
hence the unemployment and poverty could be tackled.
It is, however, heartening to note that the
government is fully cognizant of these probes and in proposing to take
some bold steps in this direction in the coming budget. It is focusing
on housing and construction industry which can create highest number of
jobs then compared to any other industry. Public Sector Development
Programme is likely to be raised to Rs. 200 billion in the coming
financial year from present Rs. 160 billion.
To demonstrate to all concerned that the government
was determined to boost the Construction and Housing Industry, President
General Pervez Musharraf himself presided over a meeting comprising
representatives of construction industry, contractors, property
developers and other stakeholders, to find out the irritants and hurdles
impeding the desired level of expansion and boost of this industry.
Addressing the meeting in Rawalpindi last month, the President urged all
concerned to work together to achieve the common goal of boosting
construction industry which would help improve the economy, provide jobs
and reduce poverty. In fact it is one of the highest source of job
creation, he remarked adding that a boost to construction and housing
industry will benefit about fifty downstream industries. Because of this
importance, this industry was on the priority list of the government.
Inviting the participants to come out with their problems he assured
them that the government will provide all the required facilitates and