THE STATE OF ECONOMY

Pakistan has emerged as the third fastest growing economy in Asia after China, Singapore

From SHAMIM AHMED RIZVI,
 Islamabad

June 13 - 19, 2005

The Economic Survey 2004-05 portrays Pakistan in the midst of an economic upswing as, with a few exceptions, all macro economic indicators have shown a remarkable improvement.

The economy performed exceptionally well during 2004-05 as its real GDP risen sharply by 8.4 percent and surpassed estimated target of 6.6 percent growth rate with a wide margin. The CBR revenue generation target is expected to exceed Rs10 billion by June 30.

The survey is also quite upbeat about the fiscal outcome. The overall fiscal deficit running at an average of 7 percent of GDP in 1990s was reduced to 2.3 percent in 2003-04 and 3.2 percent this year on account of loss in revenue under petroleum development levy whereas per capita income had risen to $734. The survey claims that Pakistan has emerged as the third fastest growing economy in Asia after China and Singapore.

The survey includes some broad indicators for a four-year period from Pakistan Social Living Standards Measurement (PLSM), carried out by the Federal Bureau of Statistics, to be released shortly. In most of the socio-economic indicators, the PLSM shows a significant improvement over the last four years.

The number of households living in one-room has declined from 28.1 percent in 1998 to 24.4 percent in 2004-05. Households using tap water as a major source of potable water has increased from 25 to 39 percent. Net enrollment at the primary school level has risen from 42 to 52 percent. Literacy rate is up from 45 to 53 percent; male literacy has risen from 58 to 65 percent and female literacy rate from 32 to 40 percent. Adult literacy rate is up from 43 to 50 percent.

During the nine months of the current fiscal year, the trend towards increased poverty and social sector related spending was also maintained and amounted to Rs191 billion against Rs156 billion during the same period last year.

The survey also claims that the national economy is undergoing structural shifts marked by rapid changes in consumer spending pattern. The real private consumption expenditure has more than doubled from 8.2 percent to 16.8 percent suggesting the emergence of a strong middle class with buying powers.

No doubt the per capital income has touched a record $736 as a result of a high growth rate but the weakening of the trickle down effect in the current phase of development and the absence of any effective distributional policies, or any significant avenue for the poor to access assets, the general perception is that the middle classes are shrinking with rampant unemployment and incomes being eroded by unchecked inflation.

In fact, latest market reports suggest that consumer finance by banks has fuelled overspending with loan defaults surfacing as a result of recent interest rate hikes. Much of consumer spending has been encouraged by consumer financing (auto, housing, personal loans and credit cards) which accounts for Rs77 billion or 23 percent of the total private sector credit. Whether it is income or debt driven; only time will tell.

While the sustained economic growth over past three years leaves the impression of a stable and resurgent economy, mounting inflation and widening trade gap bring into question the sustainability of long-term growth. The current account balance has slipped into the red after posting surplus for three consecutive years. This year has also seen mounting inflationary pressures to the highest in last eight years, eroding income of the poor and fixed income groups. As the growth rate surpassed all expectations of the policy-makers, they were not fully prepared for taking prompt and effective measures for reducing trade deficits. One finds it difficult to agree with the observations that the widening trade gap is not worrisome as long as it is caused by rising imports, which widen the production base.

To give a positive spin to every development, though tempting, is neither necessary nor desirable; in fact, it is counter productive because it undermines the credibility of the survey. For instance, the survey gives an impression as if inflation is a concomitant of higher demand due to increase in growth rates and such a phenomenon was, therefore, inevitable in the case of Pakistan.

The fact of the matter is that rapid growth also increases availability/supplies in the economy, which in turn should largely neutralize the inflationary impact originating from increased demand. If the central bank had tightened the monetary policy in time and the government had not been so callous, as it was, about ensuring adequate availability of food items at the right time and in right quantities, the level of inflation could have been contained within reasonable limits. Similarly, there was no need to show through the PLSM that living standards of the people had improved when the detailed results were still awaited from the FBS and the ground realities in the form of lengthening queues of beggars etc. indicate otherwise. To say that Pakistan is one of the fastest growing economies and compare the growth to countries like Singapore is also no solace to ordinary people when everybody knows that conditions in Pakistan are much worse.

The growing frustration, poverty and unemployment visible almost everywhere in the country in various forms cannot be swept under the rug through publication of state sponsored surveys but has to be tackled practically in more imaginative ways on an urgent basis.

Appropriate fiscal and monetary policies along with direct interventions need to be employed to ensure that basic needs of every household are reasonably met and disparity in incomes is visibly reduced.

This is necessary to avoid social and political upheaval. The unemployed and poverty ridden cannot "feel elated" by growth numbers alone.

Although the survey discussed some poverty aspects, yet it failed to reckon the extent of the real problem. It would have been much better to emphasize this aspect with greater vigour to convince all and sundry that the rulers realize the gravity of the situation and are going to effectively address the emerging scenario in the next year's budget.

ECONOMIC SURVEY AT GLANCE

VARIABLES

2003-2004

2004-2005

GDP Growth

6.40%

8.40%

GNP Growth

5.30%

8.10%

Agriculture

2.20%

7.50%

Mining & Quarrying

3.80%

5%

Manufacturing

14.15%

12.50%

Large Scale Manufacturing

18.20%

15.40%

Small Scale Manufacturing

6.20%

6.30%

Construction

-6.90%

6.20%

Electricity & Gas Distribution

21.10%

2.10%

Services Sector

6%

7.90%

Transport, Storage, Communication

5.50%

5.60%

Public Administration & Defence

4.20%

-0.90%

Per Capita Income

$652

$736

Total Investment

17.30%

16.90%

Gross Fixed Investment

17.40%

15.60%

Foreign Savings

-1.70%

1.20%

National Savings

17.70%

15.70%

Domestic Savings

17.60%

13.70%

Inflation (*Jul-Apr)

4.60%

*9.3%

 


 

PAKISTAN'S MAJOR EXPORTS (PERCENTAGE SHARE)

Commodity

90-91

92-93

94-95

96-97

98-99

99-00

00-01

01-02

02-03

03-04

04-05 *

Cotton

61.0

59.8

58.7

61.3

59.1

61.0

58.9

59.4

63.3

62.3

57.3

Leather

9.1

9.3

8.0

7.7

6.9

6.3

7.5

6.8

6.2

5.4

5.4

Rice

5.6

4.7

5.6

5.6

6.9

6.3

5.7

4.9

5.0

5.2

5.9

Synthetic Textiles

5.7

7.4

7.1

6.1

5.1

5.3

5.9

4.5

5.1

3.8

2.2

Sports Goods

2.2

1.9

3.2

3.7

3.3

3.3

2.9

3.3

3.0

2.6

2.1

Sub-Total

83.6

83.1

82.6

84.4

81.3

82.2

80.9

78.9

82.6

79.3

72.9

Others

16.4

16.9

17.4

15.6

18.7

17.8

19.1

21.1

17.4

20.7

27.1

Total

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

July-March (Provisional) Source: Ministry of Commerce & FBS

 


 

PAKISTAN'S MAJOR IMPORTS (PERCENTAGE SHARE)

Commodities

90-91

92-93

94-95

96-97

98-99

99-00

00-01

01-02

02-03

03-04

04-05*

Machinery * *

20.5

24.3

22.8

23.1

17.9

13.9

19.3

17.1

18.5

17.8

21.1

Petroleum & Products

22.2

15.5

15.3

19.0

15.5

27.2

31.3

27.1

25.1

20.3

19.1

Chemicals @

12.8

12.5

14.0

13.4

16.6

17.5

20.0

15.9

15.1

16.1

16.3

Transport Equipments

6.7

12.5

5.9

4.7

5.7

5.5

4.0

4.8

5.6

5.6

5.8

Edible Oil

5.3

5.9

9.6

5.1

8.7

4.0

3.1

3.8

4.8

4.2

3.6

Iron & Steel

3.3

3.2

3.6

3.9

3.1

3.0

2.6

3.3

3.3

3.3

4.3

Fertilizer

3.5

2.5

1.2

3.2

2.8

1.9

1.6

1.7

2.1

1.8

1.8

Tea

2.2

2.1

1.8

1.1

2.4

2.0

1.9

1.5

1.4

1.2

1.2

Sub-Total

76.5

78.5

74.2

73.5

72.7

75.0

83.8

75.2

75.9

70.3

73.2

Others

23.5

21.5

25.8

26.5

27.3

25.0

16.2

24.8

24.1

29.7

26.8

Total

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

* July-March (Provisional) Source: Ministry of Commerce & FBS
** Excluding Transport Equipments
@ Excluding Fertilizer

 


 

PAKISTAN'S EXTERNAL DEBT AND LIABILITIES SERVICING

($ Million)

YEARS

ACTUAL AMOUNT PAID

AMOUNT ROLLED OVER

TOTAL

1999-00

3756

4081

7837

2000-01

5101

2795

7896

2001-02

6327

2243

8570

2002-03

4349

1908

6257

2003-04

5274

1300

6574

2004-05*

2172

1100

3272

Source: Economic Survey

 


 

TRENDS IN EXTERNAL DEBT BURDEN

YEAR

EXTERNAL DEBT & LIABILITIES AS % OF GDP

EXTERNAL DEBT & LIABILITIES AS % OF FEE *

1999-00

51.7

297.3

2000-01

52.1

259.5

2001-02

51.0

236.8

2002-03

43.1

181.2

2003-04

36.7

164.6

2004-05 +

33.1

145.9

Source Economic Survey