GAUGING GROSS NATIONAL PRODUCT
FOZIA AROOJ (email@example.com)
Sep 29 - Oct 12, 2008
Gross National Product is the total market value of all the goods and services produced by a nation during a specified period. Pakistan's GNP has risen to Rs.10,140 billion in 2008 from Rs.8,415 billion in 2007. GDP grew by 5.8% in 2007-08 as against 6.8% last year and growth target of 7.2%. The economy has shown great resilience against internal and external shocks of extraordinary nature during the out going fiscal year. Pakistan's economy has grown at an average rate of almost 6.6% per annum during the last five years. Apparently the above mentioned statistics look lustrous and positive but reality is the other way round. The latest edition of World Bank's report titled "Doing Business 2009î issued recently records no major reforms in Pakistan, and downgrades its ranking on key business regulations and reforms from 60th to the 77th position.
Economic reforms in Pakistan are a painfully slow process; these are undertaken only when a government finds itself compelled to seek assistance from multilateral lenders like the International Monetary Fund (IMF) or the World Bank or the Asian Development Bank (ADB). Also, we, as a nation, have never been able to develop a consensus on reforming the economy because reforms in this country are considered as something imposed on us by some foreign forces through their local agents to plunder our people. Reforms are never taken as a way of moving forward on the road to sustainable economic and social growth. Some economic experts, however, point out that lack of political will was not the only factor that has prevented most government from undertaking economic, administrative, business, and other reforms. Most of the time, we didn't have enough money or fiscal space to put together and initiate the reforms program.
Adjacent countries in the region are making economic performance by leaps and bounds. In this regard India, China and Bangladesh are a prominent illustration where a paradigm shift has taken place and macro economic indicators are reflecting sterling performance in real terms. Countries that have breached trillion-dollar GDP level in the past are he US, Japan, Germany, China, UK, France, Italy, Spain, Canada, Brazil and Russia.
1- India has joined the elite club of 12 countries with a trillion dollar economy. The government has set a target of an average annual GDP growth of 9% for the Eleventh Five Year Plan. The target looks achievable as all the macroeconomic fundamentals are strong and the impressive growth rate of Indian GDP looks all set to continue.
2- China has made great achievements in economic construction and social development. In 1998, the GDP was 7,955.3 billion Yuan, an increase of 6.4 times over 1978, at constant prices; the outputs of some major industrial and agricultural products, such as grain, cotton, meat, edible oil, coal, steel, cement, cloth and TV sets, leapt from a backward position to first place in the world. The objectives for the year 2010 are to double the GNP of 2000 so that the people will enjoy even more comfortable lives, and bring a more or less complete socialist market economy into being.
IMPROVING GNP PAKISTAN:
Pakistan has to probe into the problem of deteriorating economy. In this regard it is important to go through all sub sectors which are aggregating to give rise to the national income in real terms. Some areas of investigation are as follows:
1- Constant decline in fixed as well as foreign investment is a major jerk to the economy. Overall foreign investment during the first ten months (July-April) of the current fiscal year has declined by 32.2% and stood at $ 3.6 billion as against $5.3 billion in the comparable period of last year. Flight of capital is to be remained under strict check so as to avert liquidity crunch in money as well as capital market. State Bank of Pakistan as well as Securities and Exchange Commission of Pakistan should impose strict restrictions and barriers to avoid disinvestment from local business.
2- Agriculture sector has been the back bone of the economy. Sheer negligence of political forces and non supportive attitude of the governments have caused the country to end up as a net importer of food grains and other agricultural output. During the year 2007-08 also this sector showed dismal performance and grew by 1.5% as against 3.7% last year and target of 4.8%. The agriculture growth this year is estimated at 1.5% as compared with 3.7% during 2006-07. Need of the hour is to introduce reforms in agriculture on war footings. Abundance of land and water reservoirs if exploited efficiently can not only augment national exchequer by export revenue but also get poor people out of tentacles of inflation.
3- Overall performance of manufacturing sector is no less different from agriculture. During FY 08 it accounted for 18.9% of GDP registered a modest growth of 5.4% against 8.2% last year. National income can be raised if industrial units are properly managed and multiplied.
4-Tax net has to be broadened to entice more and more people to pay tax. Federal Board of Revenue should devise measures to reduce tax evasion. Total tax revenues collected during the year 207-08 stood at Rs 1545.5 billion, higher than the targeted level of Rs 1476 billion. However, there are expectations that the FBR may fall short of its targeted level, and the year is most likely to end with total tax collections amounting to Rs 1.0 trillion-Rs. 25 billion less than the original target. Here is notable that tax revenue did rise substantially in these years (to Rs1 trillion ), but the tax- to -GDP ratio remained unchanged.
5-Expenditures have to be rationalized to justify the final shape of GNP. Total expenditure for 2007-08 was budgeted at Rs. 1875 billion. According to revised estimates this figure stood at Rs 2,228.9 billion. Two factors had a significant impact on the budgetary outlook. Firstly oil prices continued to rise at a greater pace, reaching as high as $ 115 per barrel in May 2008ó an increase of over 116% during the fiscal year. Secondly, the high international price of oil was not passed on to the domestic consumers. Consequently, the oil subsidy is projected to rise to Rs 175 billion - over shooting the targeted level by Rs 160 billion. Wheat shortage forced the government to import 1.7 million tons of wheat at all time high prices. All these expenses were a result of carelessness and laxity of previous government. Government official did not pass on the fuel price delta to the consumer just to secure a safe vote bank and also distorted wheat production statistics which caused shortage and very expensive import
6-Inflation Rate stood at 10.3% during the first ten months (July-April) of the current fiscal year, 2007-08, as against 7.9% in the comparable period of last year. The food inflation is estimated at 15.0% and non-food 6.8%, against 10.2% and 6.2% in the corresponding period of last year. This inflationary pressure has also compelled masses on increased consumer spending resulting in lesser propensity to save
7- Exports are to be increased manifold to rectify the balance of payments as well as conservation of national income in terms of foreign exchange reserves. Pakistan's export performance was dismal in 2006-07 as it witnessed abrupt and sharp deceleration to less than 4%. However, when viewed in the back of last year's performance, exports managed to recover somewhat this year but its performance has remained far short of the average growth of 16% achieved during 2002-03 to 2005-06.
8- Imports should be curtailed by SBP stringent regulations and other measures to save FOREX reserves. This year imports showed an increase of almost $ 7.0 billion. The growth in imports increased substantially owing to unprecedented rise in oil and food prices. Major contributions to import bill have come from petroleum groups (40%). raw material (21%) and food groups (16.3%). Government should attain self sufficiency in food grains cultivation to curb its import.
9- Workers' remittances totaled $ 5.31 billion in the first ten months (July-April) of the fiscal year as against $ 4.45 billion in the same period last year, depicting an increase of 19.5%. If this trend is maintained workers' remittances are likely to touch $ 5.8 billion for the year - the highest ever in country's history. This trend is quite satisfactory and government should encourage overseas workers to remit more money.
We cannot improve our gross national product, achieve solid growth, curb poverty, remove macroeconomic imbalances, and improve the balance of payments unless invest in and promote productive sectors ó agriculture and industry instead of encouraging consumption. That's precisely why we are facing expanding current account deficit of more than 8% of GDP, widening trade gap, escalating price inflation (running at 25% , growing fiscal deficit (of over 8% of GDP) and a deteriorating balance of payments position. We should try to effectively deploy the human resources, which is abundant in Pakistan and is under-utilized. Moreover, cut in government expenditure, improvement in budget and trade deficit, multiple and persistent exchange rate would also be of great help. But devaluation is not the solution of the current economic crisis and should not be resorted to in future.