THE ECONOMIC SCENARIO
Drought like situation coupled with the harsh prescription of IMF are the main problems
By Syed Asad Hussain
May 07 - 13, 2001
Pakistan's economy is now passing through a phase of bust. Behind the official statistics the economy may well be heading into recession during the FY00-01.
Drought like situation coupled with the harsh prescription of IMF are the main problems.
The ministry of finance report about the performance of Pakistan's economy during July 00 - Jan 01, suggests that the large-scale manufacturing grew by 3.4 per cent as against 5.2 per cent during the same period last year. Exports during July-Feb increased by 8.6 per cent. Imports during the above period increased by 8.7 per cent. The major increase in imports was realized in the petroleum group ( 36.2 per cent).
Balance of trade during the above period ballooned to $ 1183.0 million up from $ 1085.7 million of the comparable period last year on account of higher POL prices. Worker's remittances during July-January 2000-01 increased to $709.89 million as against $586.52 million in the comparable period last year.
Credit to private sector, a major indicator of economic activity, increased by Rs 80.6 billion as against Rs 30.5 billion during the same period last year. Increase in credit expansion is mainly due to high cotton prices and related rising working capital requirements of the textile industry. Prices as measured by CPI is estimated at 4.8 per cent during July-February as against 3.3 per cent of comparable period last year.
Surprisingly, no official data about unemployment for the period under discussion is available. In the above backdrop, it seems that Pakistan will not be able to generate enough new jobs to reduce the growing army of unemployed. The other things such as, mounting foreign debt, cramping foreign exchange reserves are making task even more difficult to achieve.
Now, Pakistan's industry is probably working between 45-50 per cent of its capacity. As uncertainty looms, drought situation gets worsen, unemployment and inflation are likely to increase rapidly. Rural poverty is likely to increase further once the spillover effect of drought hits the rural areas of Pakistan.
Pakistan's structural problems may now be too deep-rooted for the government to deal with. Among the most daunting problem is external and internal debt. Pakistan's banks are burdened with bad loans. Having had their fingers burnt so many times over a period of a decade, banks seem trying hard to live with these bad loans. The real picture is undoubtedly no good for Pakistan.
Broadly speaking, the current crunch is not a creation of the current regime and Pakistan should not expect the rest of the world to bail it out from a situation, which has been developing over a decade.
Pakistan's economic history suggests that its economic problems are of its own making and that means they are within its power to solve them. But that will take time, especially since Pakistan's recession is likely to drag on through next year.
So what must be done to put the things in order. Economists are usually accused of three sins: an inability to agree themselves: stating the facts: and giving bad advice. That said, however, following suggestions maybe of any help to policy makers sitting in Islamabad. Government should now be prepared to take tough steps if it wants economy to get back on the road of recovery. The macro steps which government may wish to consider are as follows:
Clearly chalk out short term and long term plans regarding the economic recovery.
Try, identifying those sectors of the economy, which could be the main engines of the economic growth.
Try, stimulating the marked sectors through well-suited economic policies. This will likely to help meet the objectives.
Try, gradually, to steer away the wheels of the economy from the IMF/World Bank.
Try, improving the domestic governance through solid and meaningful anti corruption law.
Try, improving the documentation system of the economy through the use of information technology.
Government must do something now to increase the local and foreign investment. For example, maintaining sustainable interest rates and inflation, expanding credit limits to investors at relatively easy terms and conditions, making government's rules and regulations more transparent to clear the smog of uncertainty, and keeping a close eye on law and order situation in the country. It is hoped the above factors will help win investors' confidence.
Investing in human resources.
Highly qualified professional economists should run the ministry of economic affairs and the ministry should be made free from political patronage.
Government must take the initiative to encourage establishing an independent model economic research institute in Pakistan. Whose main objective is to provide consultancy, research and advisory services to the government of Pakistan. It will mainly perform the following tasks:
1. Providing timely feedback to government about its economic policies floated during a given period.
2. Advising government on different economic issues.
3. Conducting polls/economic surveys types of things about the different economic issues from time to time and sharing the findings with the public/government. This will help increase the public awareness about different economic issues.
4. Carrying-out research in the area of economic policy management.
5. Running courses, conducting workshops, organizing seminars on different economic issues for private and public sector employees aimed to increase over-all efficiency of their work.
Although no one enjoying being on the wrong end of the economic cycle, this downturn could be a rude but at the same time turn into an effective awakening. Pakistan can-and should-use the crisis to create new opportunities, upgrade its industries, and fix what's broken in its economic structure. It won't be easy—but not difficult to achieve.
(The writer is MBA coordinator at Shaheed Zulfikar Ali Bhutto Institute of Science and Technology).