PAKISTANíS ECONOMY IN MUSHARRAF REGIME

MULAZIM ALI KHOKHAR
RESEARCH ANALYST
Jan 14 - 20, 2008

Pakistan is the 3rd fastest growing economy in the region for the past few years. That makes one say thanks to the credible and fair implementation of some visionary economic, social and foreign policies of the regime escorted by President (Ret. General) Pervaiz Musharraf. The regime has worked on multi factor improvement in the country which have brought fair development both at social and business level and resulted in achieving upright economic growth.

The regime started in FY-08 when the economy was almost shattered. The Government had to take bold measures to put some soul in the economy to re-stand on its own feet. For this the regime revised their foreign, domestic, economic and social policies. It became the key ally of US lead war on terror, which infact built Pakistanís image and proved beneficial in getting waiver or rescheduling of one third of external debts, with huge foreign aid flowing in Pakistan from America and its allies and also from WB, IMF and ADB. This huge foreign exchange reserves proved helpful in paying off some long outstanding loans and a fair short term relief.

With all this the Government worked on Public infrastructure development, in terms of communications, energy and water supply, was given priority, with the long-neglected railway network receiving attention so that it became profitable. Highways and ports remained priority areas, notably in Balochistan, where the Gwadar Port project proceeded apace, as did the Saindak project, both with Chinese assistance. Social services, including education and health facilities, were allotted increased resources, with special emphasis on science and technology. These were the main factors affecting indual lives in the country and benefited them the most.

While, earlier in the nineties the GDP growth stood at less than three percent with a negative cumulative aggregative 10 year growth of -0.6%. The negative CAGR shows the economy was very volatile and it was dwindling around positivities and negativities.

MACRO ECONOMIC INDICATORS

VALUES IN % GROWTH RATES

 

CURRENT (FC)

CURRENT (MP)

YEARS

GDP

AGRI.

MANUFAC-
Turing

COMM-
ODITY

SERVICES

TOTAL INVEST-
MENT

FIX. INV.

PUB. INV.

PVT. INV.

Previos base period (1980-81=100)

Current base period (1999-2000=100)

1980-89 Av.

6.40

4.43

8.59

6.86

6.07

14.41

13.97

12.59

16.40

1990-99 Av.

4.49

4.23

4.37

4.47

4.53

12.35

12.08

11.67

14.13

1900-07 Av.

5.81

3.37

9.19

5.19

5.90

17.86

18.31

13.56

20.78

1980-89 CAGR.

(4.41)

0.39

(11.11)

(4.21)

(4.30)

(1.84)

(2.11)

1.21

(2.82)

1990-99 CAGR.

(0.60)

(4.31)

(1.73)

(2.51)

1.08

-

(17.93)

-

-

1900-07 CAGR.

6.72

(2.19)

20.91

7.89

6.65

8.54

8.52

19.14

4.02

While in the regime we witness the smooth working of economy with only Agriculture producing negative CAGR which was mainly due water shortages. During the regime the GDP has achieved a decent CAGR of 7.59%, ever achieved in Pakistan, with average growth of 5.81 percent. The regime has provided tremendous growth to the manufacturing, commodity and services industries with average growth of 9.19% in manufacturing, 5.19% in commodities and 5.9% in services industries. Services sector has gone way high that now it weighs more than 50% of the economy.

Investment has vastly escalated both at domestic and foreign levels. The total investment in Pakistan has gone up to Rs. 2005 billions till the end of FY07 at average growth rates of 17.86% with 8 year CAGR of 9.66%. The public investment grew at av. growth rate of 13.56% and 8 year CAGR of 19.14% and the private investment grew at av. Growth rate of 20.78% and 8 year CAGR of 4.02%. This entire surge in investment along with the huge rush in public expenditure has resulted in vast benefits to general public. The per capita GNP has grown to Rs. 56064millions while it stood at Rs. 21899 millions at the start of the regime, thus the growth has tripled it in only 8 years.

During the end of 90s the exchange rate dripped at double pace from Rs. 21.45/$ to Rs. 51.77/$, while the Government has successfully kept it under control b/w the range of Rs.59-61/$ for the last 3 to years. This has proved to be very vigilant policy which has helped Rupee fairly stable and it declined only Rs.1.25/$ in the existing crisis while it might have had huge impact on our exchange rate and it would have aggravated the economic calamity.

One major draw back of the regime seems the increasing inflations. Inflation rates have mostly remained higher than the economic growth in Pakistan which has translated into class society with grave differences in the standards of living. This Government of Pakistan has been taking arduous stances in the near past to control it by subsidizing heavily the oil and agriculture sector and enforcing tight monetary policies, but everything seems fruitless as the inflation still appears on the hike. Over the last 5 years ending FY07 inflation has increased with 5 year CAGR of about 20% and while food inflation with CAGR 29%.

The Consumer Price Index (CPI) marked a 7.8% for the last five months JulyĖNov (FY-08); shading 45 basis points to 8.3% registered during the corresponding period of last year and showing no change to the last month Oct-07. The food inflation scored double digit with 11.5% a 130 basis points higher than 10.2% in the analogous period last year and the non-food inflation declined by 180 basis points with 5.2% while it was 7% last year for the same period.

CURRENT SCENARIO AND FUTURE PROSPECTS

Current economic scenario is quite blurred. The inflation is going out of control, the major exporting textile sector is observing all time low production, energy supply has gone very low and the global financial crisis and hiking oil prices are indicating fuzzy future.

All these conditions along with the domestic violent political conditions have increased concerns about the economy and its stability. This has started negative impact of Foreign Direct Investments (FDI), the world aid for Pakistan is under review and may lose some of them. The SCRA accounts have witness huge out flow and it stood in negatives at $0.35 millions. We can witness the energy shortage and food inflation creating chaos and unrest in the country plunging the domestic investment scenario.

We expect, if the political set-up settles smoothly, the economy has enough latitude to recover within the next two quarters. But in the existing conditions the economy is expected to nose-dive a bit in the FY08 and all the existing projections (are and) will be further revised downwards.