GDP growth rate declines half-revenue collection retained

Dec 20 - 26, 1999

Despite a horrible decline of growth rate in Pakistan's major economic sectors during past 4-5 years, the revenue collection on the part of the government remains more or less same which indicates either the revenue collectors have a magic lamp for retaining their position or the tax payers are the hostage in this country.

According to growth rate figures in various sectors released by the State Bank of Pakistan (SBP) in its annual report for 1998-99, the agriculture sector which registered a growth rate of 11.7 per cent in 1995-96 sharply declined to 0.1 per cent in 1996-97, 3.8 per cent in 1997-98 and 0.4 per cent in 1998-99. Major crops which maintained a growth rate of 6.0 per cent in 1995-96 went down to -4.3 per cent next year in 1996-97 stabilised to 8.3 per cent in 1997-98 and again dropped to the lowest of -6.6 in 1998-99. Growth in minor crops also steeply went down from 4.9 per cent in 1995-96 to 0.4 per cent in 1998-99. The manufacturing sector has also its own odds and evens. Large scale manufacturing registered a growth rate of 3.1 per cent in 1995-96 which slipped down to minus growth next year. It was -2.1 per cent in 1996-97. It showed some improvement in 1997-98 with 7.6 per cent but again dipped to 2.7 per cent in 1998-99. During the period the GDP growth rate which was 6.8 per cent in 1995-96 reduced almost to half at 3.1 per cent in the year 1998-99. In the face of this chequered history of GDP growth, the growth rate of total tax revenue level was however maintained i.e 17.8 per cent in 1995-96 which has been retained at 16.9 per cent in 1998-99.

Over the years, the continuation of certain structural weaknesses has made the external sector most vulnerable to shocks. Export growth which has been erratic and turned negative in 1998-99 despite increase in quantum of exports of major exports items reflected narrow export base and concentration of exports in low value-added products which are subject to a number of quantitative and non-quantitative restrictions in markets of advanced countries.

In a changing external environment where both volume and terms of loans are becoming less and less faourable, heavy reliance on external loans and credit for financing large and persistent current account deficit cannot continue for long, said SBP report.

The situation calls for two pronged strategy i.e. gradual reduction in current account deficit through enlarged exports, a decline in imports of consumer goods, augmentation of workers' remittances and substitution of loans with non debt creating flows such as private foreign investment. For attracting foreign investment, SBP suggests that a set of monetary and fiscal incentives is not enough. Maintaining of consistency in policies and honouring the contractual commitments, providing improved infrastructure facilities and better law and order situation and upgrading labour force skills are the important areas that need immediate attention, SBP advises.

Import bill has generally witnessed steady rise and is heavily tilted in favour of consumer goods and raw material for consumer goods which account for over half of the total annual imports bill. This trend cannot be maintained in the face of virutally stagnant exports and shrinking external assistance with qualitative changes in terms. Radical changes, including suitable changes in incentive structure, are needed both at policy and implementation stages to boost production of such agricultural products as wheat, edible oils and tea. Sharp and frequent changes in prices of petroleum and petroleum products because of their heavy weight in imports have injected an element of uncertainty for balance of payments outcome. To reduce dependence on imports, liberal incentives for exploration of oil and gas need to be provided, says the bank.

The rescheduling of debt under the aegis of Paris Club and London Club as a follow up of reactivation of programme with the IMF has provided a limited time span to put in place and strengthen various policies to consolidate the position for an improvement in the macroeconomic fundamentals. External sector should be made strong enough to resume servicing of debt — without any rescheduling from January 2001.

The report has identified areas like computer software, gem and jewellery and to some extent carpets and readymade garments where Pakistan has a large scope in future. In addition, non traditional agro based products like fruits, vegetable, dairy products offer a vast scope to boost domestic production and exports through crop substitution, introduction of modern technology for storage, processing and packging etc.

Beside the areas identified in report there are many more areas where we can generate brisk economic activities. The unutilized manforce available in plenty should be provided opportunities to display the guts and potentials. There is an immediate need of making the banking sector accessable to the grass root level which has the potential to bring a boom in the economic activities like Taiwan and Thailand. The banking sector has already tested the so called heavy weight who poisoned the whole atmosphere by misusing the financial resources of the country.