ACHIEVING 5.5% GROWTH TARGET POSSIBLE
AGRICULTURE AND LARGE SCALE MANUFACTURING TO PLAY THE KEY ROLE
SHABBIR H. KAZMI
July 21 - 27, 2008
The present government has fixed some ambitious targets for the current financial year and was also aimed at pursuing policies to achieve these. An Economic Advisory Committee has been constituted but it has not been able to come up with solutions for a multitude of issues facing the country. Experts and analysts are of the view that the economic fundamentals for Pakistan are still intact. It is true that country faces many problems but most of these are manageable. The missing element is willingness to make decisions. Sweeping the issues under the carpet could only increase the gravity of problems.
To begin with the government has fixed the GDP growth target of 5.5% for the current financial year. Some of the critics say even achieving this meager target will not be possible and they also offer credible reasons for this pessimistic attitude. However, it is the responsibility of the policy planners to come up with policies to manage even if the conditions are most hostile. On the brighter side, if all goes well achieving target output of wheat, rice, sugarcane and cotton crops and smooth working of textile, sugar, fertilizer and cement industries should help in achieving the target. A little extra effort and focused attention could even yield above the target output.
One does not have the reasons to believe that achieving higher production should be a problem. Ample water is available for irrigation and payment of subsidy on fertilizers should keep its use affordable for the farmers. However, ensuring availability of quality seeds and pesticides and extending loans to farmers can play a decisive role in achieving production and productivity of all the major and minor crops.
Increase in gas tariff is pushing up prices of all types of fertilizer but prices of DAP are skyrocketing. Local production can hardly meet 30% requirement and the country has to import the balance quantity. One of the factor responsible for hike in DAP prices around the globe is its extensive use on corn crop.
It is on record that corn oil is being used in biofuel and oil marketing companies are willing to pay higher price to encourage the farmers to grow as much corn as possible. A little extra attention to cotton, canola, sunflower and other seeds yielding edible can help in containing import of edible oil.
Farmers should also be encouraged to produce extra corn, gram and pulses. It goes without saying that two of Pakistan's large-scale manufacturing industries i.e. textiles and clothing and sugar are agro-based. If quantities of cotton and sugarcane produced are higher, performances of these two industries also improve. Not only that precious foreign exchange spent on import of these commodities is saved but production cost also comes down and prospects for earning extra foreign exchange also improve.
Lately, cement industry has been playing very important role by producing exportable surplus. However, rising prices of coal is eroding competitiveness of the local cement manufacturers. Most of the cement factories around the globe are facing more of less similar situation. The only concern is that the government is adding tax burden on the cement industry. Similarly, persistent increase in interest rates is also adding to the cost of doing business in the country.
Reportedly, there has been a decline in car sales in the country. This decline has been attributed to rising interest rates and hike in steel prices. Added to this is the recent depreciation of rupee against all the major currencies. Financial institutions are facing double-edged sword. Increase in interest is accelerating loan delinquency. When the financial institutions try to follow stringent credit approval criteria the size of the pie is further reduced. It is forecasted that profit of banks for year 2008 will be lower compared to last year, partly because of higher provisioning and partly because of reduction in capital gains.
Another important observation is that money is moving away from the banks to real estate, gold and dollars. Speculators can be held responsible for creating a bubble in the real estate market.
It may not be wrong to say that distribution of wealth in the society is becoming more uneven. The rich are getting richer and the poor are getting poorer. This trend is evident from the rising percentage of people living below the poverty line.
According to some experts the numbers about size of the economy, per capita income are grossly understated, the reason being that the data collection methodology is outdated. It is estimated that the size of undocumented economy is three times the size of documented economy. This inherent weakness understates the size of GDP, deprives the government of huge amount of taxes and above all paints a much distorted picture of the economy. It is being said that the per capita income of Pakistan is around US$ 1000. This may be an average figure but the disparity in the incomes of different groups is completely mind-boggling. According to the experts most of the people even do not earn US$ 500 but income of hundreds and thousands of people exceed US$ 25,000. This number is also on the increase because agri income and capital gains remain tax exempted. Most of the property transactions are reported at less than one-third of the actual price.
Tax evasion culture has proliferated in the country because of inefficient and corrupt tax regime, black money whitening schemes with regular intervals. Poor law enforcement due to dual standards and failure in enforcing accountability continue to encourage honest people to indulge in massive corruption to become elites of the elites.
Public representatives and experts have being saying for the last six decades that country has enormous potential for growth but by their act they ensure that poor remains poor. They might have studies in some of the best international universities but inside they remain the worst exploiters. They may be sitting on either side of the fence, (treasury or opposition benches) but in reality they have common objectives, maximize their personal wealth. Unless this attitude prevails on the country will remain poor and its people will get richer with each passing day.