FIVE YEAR ECONOMIC VISION

Pakistan's economy made commendable progress during the last three years

From SHAMIM AHMED RIZVI, 
Islamabad

Jan 20 - 26, 2003

Advisor to the Prime Minister on Finance and Economic Affairs, Mr. Shaukat Aziz has unfolded a new five—year economic vision amid at further improving the economy by enhancing the growth rate, reduction in unemployment and poverty level.

Addressing the inaugural session of the three—day conference of Pakistan Society of Development Economics (PSDE) organised by the Pakistan Institute of Development Economics at a local hotel here in the capital he reisterated government resolve to improve the life of common man, creating employment through proper growth policies and keeping inflation at the current level.

"The current financial year is to end up with over 4.5 per cent GDP growth and we are projecting to have 6 per cent growth within the next two years i.e. by 2004", he said adding that per capita income is projected to rise by 42 per cent and poverty level to come down to 25 per cent during the next five years. He, however, pointed out that political stability, regional stability and better law and order situation were the pre-requisites to achieve the five—year vision. "We must remain financially responsible", he said adding that continuation of consistent and transparent economic policies and completion of structural reforms programme was also necessary to ensure further growth and improvement in the economy.

Mr. Shaukat Aziz outlined following points in the government's economic improvement vision during the next five years:

1) Improving the live of common man, 2) Creating employment opportunities through promoting higher investment and growth, 3) Taking GDP growth to 6 per cent from the current year target of 4.5 per cent, 4) Raising per capita income by 42 per cent in 5 years, 5) Reducing poverty by 25 per cent, from the current level of about 30 per cent to 22.5 per cent, 6) Investment rise to 18 per cent from the current level of 15-16 per cent of GDP and saving rate to rise to 16.5 per cent from the current level of 15 per cent, 7) Inflation to remain below 5 per cent, 8) Fiscal deficit to decline to less than 3 per cent of the GDP from the current year's target of 4.4 per cent, 9) Public debt to decline to 76 per cent of the GDP from the current level of about 97 per cent, 10) Current account deficit to range between 1.0 per cent and 1.5 per cent of the GDP, 11) Development spending to rise above 4 per cent of the GDP from the current level of 3.3 per cent, and 12) Social sector development to continue to be the cornerstone of the government's economic policy.

He recalled that the last Annual General Meeting of the (PSDE), had taken place in the backdrop of the events of September 11, 2001, which changed the complexion of the global economy, while this year's meeting is taking place in an environment of extreme uncertainty, "as the threat of war is looming large" on Iraq. There is a general perception that an armed conflict in Iraq could thoroughly shake the already fragile world economy, causing disruption in oil supplies to the rest of the world, particularly Asia which has little oil reserves of its own and remains heavily dependent on imports. Such disruption is bound to cause oil price hike, rising economic uncertainly and decrease in business and consumer confidence".

The PM's Advisor said that recent estimates suggest that a sustained price hike of five dollars per barrel of crude would slow down growth in world economy by 0.3 per cent, with Euro zone and United States witnessing drop in GDP growth by 0.4 per cent. "To the extent that Pakistan is integrated with the world economy, the slow down is likely to cause temporary difficulties for us as well. The avoidance of war in Iraq, therefore, is in the best interests of the global economy in general and developing countries in particular", he cautioned.

He said that despite a series of domestic and external shocks, such as unprecedented drought, the event of September 11, and the military build-up by India, Pakistan's economy made commendable progress during the last three years. "The economy is now more stable, economic policies are transparent and predictable; confidence of the private sector is restored; expatriate Pakistanis are bringing their capital; stock market is buoyant; external balance of payments is in a comfortable position; foreign exchange reserves have crossed $9.4 billion and are sufficient to finance ten-and-a-half months of imports; exchange rate is stable, inflation is low and interest rates are declining; domestic and external debts have declined; fiscal deficit has been lowered and current account balance is in surplus; tax collection is growing; exports have picked up; governance has improved; and lastly, Pakistan's credit rating international markets has improved", he added.

The PM's advisor said these improvements must be viewed in the backdrop of major challenges which the country confronted some three years ago. "Theses challenges included; 1) Stabilizing the country's debt situation with a view to restoring macro-economic stability; 2) reviving investment and growth; 3) preventing people from falling below the poverty line; and 4) improving governance. "Given the nature and depth of challenges," he said, "we had two options. First, to address all the four challenges simultaneously, or second, to prioritize them and address the core issues first," he added.

Shaukat Aziz said after extensive deliberations it was decided to adopt the second option. "We decided to address the issue of severe macro—economic instability and stability, and improved external balances by undertaking a comprehensive set of economic stabilization and structural reform measures," he said.