SOME OF POSITIVE ECONOMIC SIGNS
By MOHAMMED AKMAL PASHA
June 09 - 15, 2003
For the LDCs, the twin targets of effectuating quality growth and sustainable development remain a dream to beget, for; entangled in the perennial socio-economic quagmire they sail but only with fits and starts. Persistent growth process if any is hindered by external and internal predicaments which enact interchangeably or concomitantly, to contain development up to merely a couple of years. In this backdrop showing signs of improvement in various sectors both individually and collectively, over some period of time can be reckoned nothing but an astounding endeavor.
Pakistan's last three years of economic management relay healthy signals; implying that almost all macroeconomic variables display positive behaviour. In this regard, lower fiscal and current account deficits, high foreign exchange reserves, exchange rate stability, lower inflation, lower lending rates coupled with increase in the availability of credit, improvement in the country's credit-worthiness, better debt management resulting in reduction in debt burden and improvement in the country's corruption perception has in turn helped revive business confidence — both domestic and international.
Pakistan while traveling on the economic reform path during October 1999-October 2002, for the first time in its history completed any structural adjustment programme of the IMF successfully, and thus received all the tranches attached with the programme, in time. The IMF is now assisting Pakistan in the PRGF, which so far is progressing smoothly.
In fact, as per norm predominant in LDCs; the economic reform programme only materialized at the expense of certain sacrifices and hardships in Pakistan. For example, the bonafide attempt of rightsizing and downsizing exercise unfortunately boosted the unemployment rate; so much so that even the jobs created by the government through its Khushhal Pakistan programme fell short of compensating for the loss. On the other hand the compulsion to reduce budget deficit, which also resulted into lowered development expenditures, adversely affected the physical and social infrastructure in special and exacerbated the state of poverty and joblessness in general, albeit it helped serve initial purpose that of squeezing budget deficit.
Nevertheless, the economic reform path fostered a certain degree of macro-economic stability. By the same token, demand management policies, fiscal and monetary discipline, helped bring the inflation rate down from double-digit figures to less than five per cent. The fiscal deficit squeezed from 7 to 5.3 percent on account of controlling non-development expenditures on one hand and increasing tax revenue from Rs 308 billion in 1998-99 to above Rs 400 billion in 2001-02 on the other. Current account deficit could be met by dint of increased foreign exchange reserves, enhanced income from home remittances and expanded external financial assistance. Similarly, improved balance of payment position resulting into exchange rate stability and up gradation of Pakistan's credit rating was all heartening.
Since the IMF structural adjustment programme being underway, the government was able to get $12.5 billion of its external debt rescheduled from Paris Club, thereby lowering debt-servicing liability. Further, the banking sector reforms garnered more credit for the private sector; the mark-up on loans also came down.
Foreign trade sector during July-January, 2002-03, brought improved balance of payments. Exports surged up by 19 per cent to $6.14 billion, effectuating achievement of $10.4 billion fixed for fiscal 2002-03. Imports increased by about 20 per cent to $6.85 billion, but a relatively better position of exports resulted into better balance of payments. On the manufacturing front, the industrial production increased by 5.6 per cent during the first five months of the current financial year, materializing tax collection which manifested about 15 per cent growth. The tax collection stood at Rs 237 billion against the seven-month target of Rs 238 billion, again right up to the target. Home remittances amounted at $2 billion against a target of $4 billion for the whole fiscal year.
In a similar fashion, the FDI also recorded an increase amounting to $540 million, against a target of $1 billion for the entire fiscal year. The economic revival ensnared almost every sector; in short, the KSE 100 index broke all previous records getting momentum from economic up rise, lest not menaced by Iraq war.
In this backdrop, the advisor to the Prime Minister on Finance, justifiably expected to raise GDP growth to 6 per cent within next two years, while containing inflation below five per cent. The government envisages reducing poverty from the present level of 30 per cent to 22.5 per cent; raise savings from 15 per cent to 16.5 per cent and investment from 16 per cent to 18 per cent. It also aspires to bring down budget deficit to 3 per cent and current account deficit to 1-1.5 per cent; reduce public debt to 76 per cent of GDP from 97 per cent at present. Increasing development spending to 4.5 per cent of the GDP from 3.3 per cent at present; and creating new job opportunities through boosted investment and growth is also on the anvil.
One must not feel reluctant saying it a well-done job. The only point is that if the growth is a quality growth; the development has also to be a sustainable one. To render growth equitable and development sustainable, all what is required is good governance, characterized by political and regional stability, maintenance of law and order, fiscal discipline and creation and continuation of good economic policies. These steps may prevent our economy from sudden shocks and the potential losses arising from natural calamities; unlike our agriculture suffered $2 billion loss in the hands of drought just a couple of years ago.