Private sector expressed serious reservations about some of the recent developments and the trends of Pakistan economy.

May 22 - May 28, 2006

As usual, the Prime Minister Shaukat Aziz in his inaugural address to the two-day meeting of the Pakistan Development Forum (PDF) in Islamabad on Wednesday painted an extremely rosy picture of Pakistan economy and state of development of the social sector and spoke of its bright prospects in an eloquent manner. His views were, however, not fully shared by other participants including representatives of donor agencies and Pakistan's bilateral trade partners.

At the meeting of the forum ,previously known as Aid to Pakistan Club, which was attended by almost all multinational donors representatives of the Government of Pakistan including the Prime Minster and other participants specially the donor agencies, emphasized their views in a way as they were talking about two different economies.

While the Prime Minister's speech was a great morale booster as he narrated the success story of Pakistan economy and his adviser, Salman Shah commended the performance of economy in a highly positive tone, the representatives from international organization and the private sector expressed serious reservations about some of the recent developments and the trends of Pakistan economy.

According to the Prime Minister and his team, all social and economic indicators of Pakistan were showing positive trends. The country would sustain acceleration in growth within a range of 6 to 8 percent over the next 5 to 10 years despite so many challenges likely to be confronted. Poverty had declined from 32.1 percent to 25.4 percent and per capital income was expected to reach 800 dollars by end of June this year.

it was maintained that Gross primary enrolment had increased to 86 percent, immunization of children had gone up to 83 percent, water supply had been assured to 39 percent of the population and Pakistan was fast emerging as a good choice for investors. The country, the Prime Minister asserted, "is all set to become" a regional economic hub with a specific role as trade and energy corridor for China and Central Asian countries.

He listed reforms, continuity in policies, opening up of different avenues to the private sector and location advantage as the driving forces of the economy.

Salman Shah said that Pakistan had truly laid the foundation for a robust and vibrant market economy. Major achievements included a strong recovery supported by a robust performance in industry, agriculture and services, extraordinary strengthening of domestic demand, reduction in fiscal deficit, a high double digit growth in exports and imports, increased workers' remittances, stability in the public and external debt burden, accelerated privatization programme, capital market strengthening and improved social and human development indicators. It was also claimed, "We are doing fairly well in attaining the Millennium Development Goal (MDGs)".

Non-government participants were quite blunt in their criticism of some aspects of the economic performance though they did not directly argue against the statements from the government side.

According to Praful Patel, World Bank's Vice President for South Asia, Pakistan had history of "boom bust cycles" and "now is the time to sharpen the watch on macro economic situation". Pakistan's economy had started showing signs of 'overheating as imports were swelling at a faster rate than exports. The root causes of growing external imbalances needed to be addressed through coordinating monetary and fiscal policy reforms to avoid "pain and disruption of a hard landing".

An inequitable distribution of assets was depriving the common people of due share of the benefits of growth , said Patel and added that despite seven years of trade, regulatory and banking reforms, the cost of doing business in Pakistan was still too high.

Ahmad Mohammad Ali, President of Islamic Development Bank, said that unless the growth produces a credible impact on the lives of common people, ground realities would not change. Another challenge was how to mobilize domestic savings for investment, notwithstanding the importance of international resources. Ahmad Ali also urged the government to provide alternatives to encourage more of its migrant workers to channel their remittances into infrastructure and other development projects .

The European Union delegate advised the government to pay more attention to growing inequality, as economic growth alone could not reduce poverty. He also sought repeal of 'discriminatory' stipulations of the Hudood Ordinance, blasphemy law and Qisas and Diyat laws. According to the ILO Director, unemployment of the educated class had increased in the past few years. Private sector representatives expressed worries about rising trade deficit, lack of trained workforce, low educational standards, looming energy shortage and higher cost of doing business that together hampered Pakistan's ability to compete in the international market.

It is unfortunate that economic managers of our country are loosing their credibility as people within and outside the country have started disbelieving their oft-repeated tall claims of economic growth and its positive impact on common man. The hollowness of such claims of the Prime Minister that inflation had been contained and benefits of the economic growth have started reaching the common man with a positive impact on his purchasing power was fully exposed during the 3-day debate in the National Assembly last month. One speaker after another from both sides of the house bewailed the plight of the common man and challenged the tall claims of a strong economy leading to prosperity of the people of Pakistan.

As this was not enough, the President, General Pervez Musharraf during a briefing by the Governor State Bank of Pakistan bemoaned that the rising inflation was endangering the national economy. Perhaps the President did not believe the Governor SBP when she told him that the rate of inflation had slowed down as a result of anti inflationary measures taken by the government and the tightened monetary policies perused by the central bank.

During his first visit to SBP head offices since Miss. Shamshad Akhtar took over as Governor, President observed "the State Bank of Pakistan will have to take immediate and long term steps for resurrecting the situation and must devise a clear strategy to control inflation," economic gains will only be meaningful when they are translated into providing a better life for the common man," he said.

Such talks as delivered by the Prime Minister and his advisor at the forum would have gladden many hearts but for the fact that figures can be played around with and the objective realities on the ground distorted to present a rosy picture of things, as is being done these days. As for the millennium goals being achieved, as Mr. Aziz has claimed, one will have to be a diehard optimist with blinkers on one's eyes to believe him. Even if one were to go by the statistics released by the government's own agencies, the claims made by the prime minister seems too far-fetched.

If one were to analyze the figures for the poverty level given by the State Bank, it is quite clear that the government's interpretation of who is above the poverty line is pretty unreal and more technical. Thus a large number of those classified as non-poor (34 percent) are admitted to be "transitory vulnerable" and transitory non poor". They are borderline cases and will go below the poverty line in case of shock at the macro level.

What is significant is that the Pakistan Millennium Development Goals Report, 2005, which is the Planning Commission's monitoring record of the government's performance is cautious in its assessment of the achievability of the eight MDGs.

Over all its finding for practically all the goals poverty eradication, promotion of universal primary education, gender equality, reduction in child mortality, improvement in maternal health, the combating of Aids, malaria, etc, environmental sustainability and the creation of a global partnership for development is that they are achievable but call for greater and more timely efforts in terms of strengthening institutional capacity, addressing root causes of poverty, incentives for enhancing learning achievement, and greater government intervention. The report admits that many of the goals are too ambitious for Pakistan and its past record makes the underachievement of the MDGs a possibility.

The government should be more serious, however, about addressing the shortcomings pointed out frequently by experts, within and outside the country. Government representatives are probably right when they assert that the worst is over. It was not long ago that per capita income was almost stagnant due to very low growth rate, the country had almost lost its financial sovereignty and international rating agencies had downgraded it to a selective default level. Pakistan has surely crossed the bridge from the stage when the economy was fragile, the balance of payments vulnerable, the debt situation had worsened and foreign exchange reserves were not sufficient even for a few weeks of imports.

A turnaround in some of the major aggregates does not, however, mean that the economy would henceforth always show a healthy trend and the weaknesses are a thing of the past. Most of the downside risks pointed out by the participants are real and need to be addressed properly and effectively before matters get out of hand. Certainly, the economy is showing signs of overheating as reflected in the external trade profile of the country bank borrowings by the private sector and a high inflation rate.

Inequitable distribution of assets is accentuating disparities in income and standard of living. The most formidable challenge as pointed out by Dr. Ali is the huge gap between domestic savings and investment, which sooner rather than later could act as a brake to our development effort. Unfortunately the government is putting all the emphasis on foreign investment to sustain the development process, which is not the way for a self reliant and stable growth.

Large-scale unemployment of educated people in the urban areas, endemic poverty and increasing disparities in incomes lead to a deadly combination. The Prime Minister has said that poverty has declined by 6.7 percent. This would be very welcome news if only backed by ground realities at the grass roots level and supported by proper statistics that are beyond any doubt.

PDF is organized every year before the budget to seek assistance from the donors, it would therefore be fit and proper if the concerns of the donors as expressed forcefully and clearly this time by them are also given due attention in the overall policy formulation of the government to the promote long term economic agenda of the country.

In its last quarterly report on Pakistan Economy the Asian Development Bank had also warned the Economic Managers of Pakistan that rising rate of inflation will make the economic growth meaningless as far as the common man is concerned. The Bank experts rightly advised the government to immediately take effective measures to control the monster of inflation. Unfortunately, the government did not pay due attention to the advise.

Under the circumstances, it is not possible to agree with the Prime Minister that Pakistan is, witnessing a rising, vibrant middle class. With wages not rising and the prices practically going through the roof the only trend, the middle class is found registering in, is of the withering away. As warned repeatedly, this trend will eat away the only engine of long-term real growth. The government is advised to put aside the pursuit of impressive statistics and concentrate on improving the fast deteriorating living standard of the common man.

A high growth drive that benefits a few and makes life for the many cannot keep kudos coming for long. Till now, the economic turnaround has benefited only the upper class, those with the capital to invest and reap dividends. It is warned that with the vast majority's disenchantment continuously increasing, the government's problems will only grow.