Pakistan's Economy Able To Resist The Odds. GDP growth at 3% is a significant achievement

June 24 - 30, 2002

During this past week three important documents were released on Pakistan economy: 1) Third Quarter Report by the Central Bank, 2) Economic Survey of Pakistan and 3) Federal Budget for financial year 2002-2003. All these indicate reasonably good performance despite September 11, 2001 incident and subsequent events. However, some of the critics of present government are trying to undermine the performance.

After the September 11 incident even most of the developed economies of the world came under extensive pressure. All the governments are trying hard but the process of recovery is very slow. The recent recession has been termed as synchronized global recession. In this backdrop the expectations for achieving over 3 per cent GDP growth rate is a credible performance. It sounds even better due to shortage of water and tension on Line of Control and Indian border. The factors indicating the resilience of Pakistan's economy are: 1) forex reserves exceeding US$ 6 billion, 2) over US$ 2 billion surplus current account, 3) improving balance of trade, 4) increasing foreign portfolio investment, 5) on going and successful process of privatization and 6) increasing quantities of exports.

The GDP growth has been driven mainly by better performance of agriculture and large-scale manufacturing. Improvement in current account has been due to about 8.5 per cent fall in import bill. The fall in imports has been due to lower POL prices in the global markets, virtually no import of sugar and an overall reduction in import bill of food items. Pakistan was able to contain fall in exports by exporting larger quantities as well as POL products. With the greater access provided by the European Union and revival of the US economy export of textiles and clothing are expected to improve further.

However, the key issue faced by the GoP is inability to improve revenue collection. In the budget for next financial year GoP aims at expanding tax net, imposing General Sales Tax on more items. Despite the plan to increase revenue collection there seems to be no strategy to recover tax on income from agriculture. It is a rather tricky issue and most of the work has to be done by the provincial governments. To overcome shortfall in revenue the GoP aims at restructuring tax collection regime and encouraging more and more people to avail the facility of self-assessment scheme.

To some of the critics, sale of Pak Saudi Fertilizer Company (PSFL) and bidding for United Bank Limited (UBL) are not significant events. The critics must realize that both the bidding were held in post September 11 period when global investors were busy in efforts to overcome their own problems. Efforts were made by some people to block the sale of PSFL which did not succeed. As regards UBL, certain groups are trying to create an impression that the bidding was not transparent. However, the real achievement of Privatization Commission is that it was not only able to solicit bids but also at attractive prices. The keen interest of local investors also indicate their faith in Pakistan's economy. One should not forget that it is confidence of local investors that gives courage to foreign investors to look and subsequently invest in that market.

It is also a perception that Pakistan's economy is not doing well because the benefits have not trickled down to citizens. This impression is not correct. The resilience of the economy is evident from increase in the quantities of major exports. This can only be achieved when exportable surplus are available and/or manufacturing units not suffering from lower capacity utilization. During the ongoing financial year virtually there was no import of sugar and fertilizer was exported, though in small quantity only.

Another factor exhibiting the resilience of economy is performance of equities market, indicating about 47 per cent increase in market capitalization with the beginning of year 2002. The KSE-100 index was around 1273 points at end December 2001 and touched 1931 point on March 14, 2002. The key factor contributing to this was the net inflow of portfolio investment of US$ 50 million as compared to a net outflow of US$ 32 million in the corresponding period of last year. Analysts attribute this performance to capital market reforms. These included, introduction of T+3 settlement system, stringent following of capital adequacy requirements and changes in COT rules.

It may not be wrong to say that the forces which do not wish political and economic stability to prevail in Pakistan keep on striking. Be it the killing of French engineers or blast near the US consulate, the aim is always to create disruptions. The strength of Pakistan's economy is that it has withstood all such acts. If the conditions are more conducive, the output could be still higher.