PAKISTAN 63 YEARS DOWN THE LANE
AROOJ ASGHAR (Arooj.firstname.lastname@example.org)
Mar 23 - 29, 2009
Sixty three years, from the perspective of an individual's life span, is a long time. From the perspective of a nation's history-especially if that nation is Pakistan - it is but a brief moment in time. But in history, much can happen in such brief moments. Pakistan was one of the few developing countries that had achieved an average growth rate of over 5 percent over a four decade period ending 1990. Consequently, the incidence of poverty declined from 40 percent to 18 percent by the end of the 1980s. The country made significant economic achievements since independence but a disappointing record of social development. Pakistan, a country with over 30 million people in 1947 couldn't feed itself and had to import all its food requirements from abroad. Now, the farmers are not only able to fulfill the domestic needs of wheat, rice, sugar, milk but also exported wheat and rice to the rest of the world. If one goes by the newspapers, one word may suffice to describe the state of the Pakistani economy today: 'optimistic' for one school and 'sold-out' to another. There seems to be no middle ground: It is in the nature of economic debate that the same country for the same time period, from the same data sources, can be described in such diametrically opposite ways.
Growth is important, but growth alone is not enough. How are the fruits of growth shared is the key? One measure of how the fruits of growth are shared is the trend in inequality. This is one key factor which has created issues among provinces of Pakistan.
Economic progress must be reflected in human wellbeing. Unfortunately, other indicators of human development are not so positive; a matter of national shame. Pakistan ranks very low in the comity of nations on the Human Development Index brought out by the UNDP.
An average Pakistani earns about $800 in 2007 compared to less than $100 in 1947. Agriculture production has risen six times with cotton attaining a level of more than 10 million bales compared to 1 million bales in 1947. Pakistan has emerged as one of the leading world exporter of textiles.
Pakistan hardly had any manufacturing industries in 1947. Six decades later, the manufacturing production index is over 14,000 with the base of 100 in 1947. Steel, cement, automobiles, sugar, fertilizer, cloth and vegetable ghee, industrial chemicals, refined petroleum and a variety of other industries manufacture products not only for the domestic market but in many cases for the world market too.
Pakistan's vast irrigation network of large storage reservoirs and dams, barrages, link canals constructed during the first five decades which has enabled the country to double the area under cultivation to 22 million hectares. Tube well irrigation provides almost one third of additional water to supplement canal irrigation.
The road and highway network in Pakistan spans over 300,000 km - more than six times the length inherited in 1947. Modern motorways and super highways and four lane national highways link the entire country along with secondary and tertiary roads.
Natural gas was discovered in the 1950s and has been augmented over time. As of now, almost 30 billion cubic meters of natural gas is generated, transmitted and distributed for industrial, commercial and domestic consumption. A large reservoir of natural gas is in Balochistan but due to law and order situation nothing concrete has been done for further exploration of natural gas and minerals in the province since 2002.
These achievements in income, consumption, agriculture and industrial production are impressive. These have changed lives of people and have lifted millions of people out of poverty levels. While looking at these achievements one must not forget the missed opportunities. The list would be much bigger then the achievements. The single largest setback is the neglect of human development, literacy rate, level of education, weak system, exploitations and brain drain.
Pakistan's manufactured exports in the 1960s were higher than those of Malaysia, Philippines and Indonesia. Investment in education, improvement in skills and health of the labor force could help Pakistan to sustain that level.
Since independence, Pakistan has achieved considerable progress in macroeconomic stability. Overall it remained a mixed trend, sometimes strong and sometimes weak macroeconomic performance. Except three occasions i.e. in before 1971, Pakistan never has budget surplus even then country has made good progress.
The financial sector has been restructured and opened up to competition. Foreign and domestic private banks currently operating in Pakistan have been able to increase their market share to more than 60 percent of assets and deposits. The interest rate structure has been deregulated and monetary policy uses indirect tools such as open market operations, discount rates etc.
Agriculture in 1947 was traditional. 70% of the population contributed over 50% of national income. In these 63 years, it has not changed fundamentally. Today, 21% of GDP is from agriculture, but it still supports 66% odd of the population. Cash crops like sugar became important in several parts of the country when irrigation became available. But there has been no such boom in other food crops. Meanwhile soil has been degraded in Punjab and elsewhere; this is the flip side of the country's agricultural sector, and today needs to be addressed. Increased dependence on the market by small farmers investing in commercial crops like cotton has also led to much distress-farmer's poor financial and physical health is much in the news. Their ability to take risks is small and must be strengthened. Attempts to deal with this distress are being made. Whether they will be successful remains to be seen.
Water is becoming a scarce resource, and it will be at the centre of conflict soon. Water is intrinsically tied up with agriculture. Water intensive crops like sugar have become more important. India has constructed number of dams but unfortunately Pakistan's ruling class didn't take appropriate action at the right time. In next few days Pakistan will face water crises for which there would not be any solution. It was criminal negligence on part of Shaukat Aziz government.
Manufacturing has increased significantly since Independence. There was little by way of industry in 1947. Ayub Khab's Five Year Plan, around which there was general agreement, began a thrust for public investment in industry, and in a short span of years, capacity was built up in machine tools, heavy electrical, power equipment, dams, electronics, chemicals and fertilizers, telephones and many more areas. 1971 brought 180 degree changes in Pakistan's industrial scene. Government nationalized the industry and banks thus started a new phase of economy. A lot of political inductions were made in those corporations which later ate their earnings and are now white elephants. This downslide had a host of reasons, industrial growth slowed down. After the late 1970s, public sector growth based on new investments slowed down. The public sector grew, but by transfer from the private sector.
This was the time when a new term entered the economist's lexicon: industrial sickness. Large amounts of bank funds were locked up in sick units. The next phase across Pakistan's industrialization was the semi governmental and later full privatization. This phase touched its peak in 2006. The process is now jammed with the shut down of steel mill privatization by Supreme Court of Pakistan. In last 5 years heavy foreign inflows came in telecommunication sector, mainly in the shape of license fee and acquisition price. Virtually nothing has been invested in the manufacturing for telecommunication sector.
Planning by policy makers has been a failure in the country. Bureaucratic judgment is a poor substitute for market's judgment on allocation of scarce resources. The basic business decisions should not be made by the bureaucrats instead opinions of industry experts should be given priority. Greed of more wealth, expansion in business through negative means has not only hiked that cost of doing business but also affected country's economy. Tax structure still needs reforms and transparency. High tax rates on individuals and corporate are counter-productive as they raise costs, discourage effort and initiatives. This also leads to widespread tax evasion and lowering of overall revenue collection. Foreign investment and multinational corporations are not evils that should be shunned but are the most important source for transfer of technology, managerial skills, organizational innovation in addition to much needed capital and foreign exchange. They should be welcomed and made to feel comfortable in their operations.
The lessons learnt from its historical experience have led to emergence of a broad consensus on some key policies and parameters. It will be fair to say that investors in Pakistan should feel confident that the future direction of economic policy making will be guided by the following principles although in a dynamic and ever changing world, economic management will have to be responsive to the needs of the time and events. Outward-looking strategy that promotes exports and integrates Pakistan into the world economy is in the best interest of the country for accelerating growth and reducing poverty. Private sector is the main vehicle for producing and exchanging goods and services for the domestic economy as well as the rest of the world. Prices should be determined by the market forces but monopolies regulated by independent agencies. Lastly, the role of the state is to provide security of life and property, have an independent judiciary that can arbitrate disputes and enforce contracts, build physical infrastructure, nurture human skills and train manpower and maintain an enabling macroeconomic and regulatory environment in which businesses can flourish.