A REVIEW OF THE ECONOMY
From SHAMIM AHMED RIZVI,
Mar 17 - 23, 2003
Launching the "Mid year review of the economic performance" in Islamabad last week, the advisor to the Prime Minister on Finance claimed that almost all the economic indicators were moving in the right direction and would continue to do so in the foreseeable future. He repeated the claim earlier made by the Governor State Bank of Pakistan that the economy was in a takeoff position adding that almost all target set for the current financial year will be surpassed.
While nobody dispute that all key economic indicators have been showing steady improvement, there is, however, a sense of disappointment that the benefits of these gains have not started trickling down to the poor and have-nots. As one economic analyst aptly commented that the economy was being painted as rosier while people were looking paler. Somehow the improvements in economic indicators have failed to translate into a corresponding beneficial impact on the economic health of the ordinary citizens. Poverty is on increase, unemployment is rampant and fixed income group is living a miserable life.
Mr. Shaukat Aziz claimed that the growth target of 4.5 per cent was expected to be surpassed due to "prudent economic and financial policies," because of better rice, wheat and sugarcane crops, the projected growth of 2.7 per cent for agriculture sector was also likely to be exceeded.
Industrial production rose by 8.5 per cent during the first half of the current financial year. Money supply grew by 9.4 per cent during the same period and inflation was contained at 3.5 per cent, which was below the annual target of 4.0 per cent. The stock market was buoyant and the Karachi Stock Exchange was regarded as the best performing market in the world during 2002. Tax collections exceeded the target of Rs.238 billion during the first seven months of 2002-03. The Public Sector Development Programme (PSDP) at Rs.144 billion was up by 45 per cent over the corresponding period last year. Fiscal deficit remained under control. As against the mid-year target of Rs.107 billion, the overall fiscal deficit stood at Rs.75 billion or 1.8 per cent of GDP. Domestic debt, which had risen by 16 per cent per annum during 1990-99, grew by only 0.7 per cent between June 2002 and January 2003.
The external sector also recorded substantial improvement exports grew by 19.1 per cent while imports increased by 19.6 per cent. Trade balance deteriorated by 24 per cent but this was mainly due to a 42 per cent increase in the import of machinery, which is a healthy sign indicating a pick-up in domestic economic activity. Remittances by overseas Pakistanis have already crossed the $4.3 billion by June 2003. Foreign investment had picked up substantially and was estimated to touch one billion dollars during the current financial year. Foreign debt and foreign exchange liabilities were reduced by $200 million during July-December, 2002. In terms of net debt and liabilities, Pakistan had made considerable progress during the last three and half years. This figure has been reduced by $8.23 billion from $36.90 billion at the end of June 2000 to $28.67 billion by December 2002.
But somehow this improvement has failed to translate into a corresponding beneficial impact on the economic health of the ordinary citizens. If anything, they are worse off now, and with the official endorsement of their fears that the country's estimated oil bill is likely to shot up by $ 1 billion in the event of a US attack on Iraq, the man in the street is experiencing serious jitters. He is already paying through his nose for the basic necessities of life, which become dearer with even a slight rise in the price of oil. Kerosene, petrol and diesel apart, the increase takes a wide variety of goods and services out of his reach. As the sole superpower is dead set to ignore the worldwide public outcry, there seems to be little escaping from war, whatever force and justifiability the argument that it would be totally unfair and unjust. And if Washington's optimistic assumption that it would be limited in time and space were to go awry, one should expect serious disruption in the production as well as carrying of oil from the region. Resultantly the psychological impact of hostilities on its price even without production or transportation getting affected, would be considerably heightened. Being in the war zone, we would also suffer on account of higher freight charges on both imports and exports, which may upset the apple cart of improving economy.
The same day when Mr. Shaukat Aziz was extolling the military regime's economic performance, the Nawaz government's finance minister Ishaq Dar was telling a different story. He talked of lower investment in the Musharraf era's three years than Nawaz's of lesser period: $1.2 billion against $2.2 billion. He claimed that per capita income had come down from $502 to $422 while India's risen from $424 to $484 and the number of poverty-stricken people had sharply risen from 37 million to 57 million. Questioning the veracity of Mr. Aziz's assertion that the country's total debt burden had lessened by an unbelievable $8.2 billion, Dar maintained that in fact it had become heavier from Rs 3.13 trillion to Rs 4.14 trillion. Similarly, the amount of non-performing loans had increased from Rs 212 billion in October 1999 to Rs 285 billion now. Whichever side one takes, would be impossible to deny that more and more people are falling below the poverty line. The government's gradual abdication of responsibility to provide education and healthcare to the people at reasonable expense has left them with even fewer prospects of a happier future.
It is commonly believed that the government in Pakistan have developed the habit of giving only a one-sided picture of the economy that depicts their efforts or lack thereof in good light. The present government has shown some improvement in this respects but still more needs to be done. One could go back to the observations of the IMF made only a couple of days ago at the time of approval of PRGF's fifth tranche to find out that everything is not right with the economy. These observations indicate that the Fund has serious reservations on the working of WAPDA, is unhappy with non- priority expenditures etc. and had to grant certain waivers for the release of tranche while saying "progress on the structural front was uneven". Government documents and pronouncements of its ministers would, in our view, carry more weight, have credibility and be more acceptable to the public at large if these contained an objective assessment. A deliberate effort to paint a rosy pictures a tried formula, which often fails to lift the spirits of the people.
It also needs to be highlighted that despite all the efforts during the last three and a half years and improvement in vital economic indicators, the life of the common man continues to be miserable as before and this is a huge failure. In fact, the level of poverty and unemployment seems to have visibly increased. Expenditure on PSDP has risen during this year but it is still so little compared to the need that a significant improvement might not be discernible for a long time to come. Another irony is that the government and major financial institutions are showing the door to ordinary employees in great numbers but recruiting other people on contract or re-employing old hands on high salaries with no visible improvement in performance. This is resulting in unemployment on a large scale, causing distress to the employees, particularly in the lower cadres and promoting cronyism.