HULLABALOOS OF 2009
SHAMIM A. RIZVI
Jan 4 - 10, 2010
Last year 2009 was slightly better than the year 2008, which was described as one of the worst years in the economic history of Pakistan. However, the year could not be termed as economically good since it was a difficult year for Pakistan's economy.
Several political and economic events both on domestic and external fronts occurred unexpectedly having a direct impact on the economy. These events included disturbed political conditions, unstable law and order situation, supply shocks, soaring oil, electricity and gas prices, falling exports due to softening of external demand and mainly because of the rising cost of imported industrial goods making final products uncompetitive in the international market.
All these factors adversely affected the macro-economic-fundamentals of Pakistan's economy during the year 2009.
The most important factor has been the non-serious and indifferent attitude of the incumbent rulers who were mostly engaged in solving the internal conflicts and disputes between the coalition partners.
Failure of the government lopsided policies, energy shortages, soaring oil and food prices, growing terrorist attacks, tussle with judiciary, NRO and its aftereffects landed the country in an economic and political mess.
To meet these serious challenges facing the country we needed a strong, selfless, and visionary government. Unfortunately, the present ruling class headed by Mr. Zardari does not come up to that standard.
The economic growth in the year 2009 was principally driven by the agriculture sector posting a growth of over 4 percent as against 1.1 percent in 2006. The manufacturing and services sectors showed a dismal performance. Exports fell significantly. Fortunately, however, imports also fell drastically because of falling purchasing power of people and so the trade deficit remained within manageable limits.
Unlike last year when net exports contributed 38.3 percent, the growth pattern this year presents a different picture. It came down to about $14 billion from 19 billion last year. The contribution of foreign direct investment declined significantly from 45 percent last to almost 15 percent during the year under review. Remittances by Pakistan expatriates, however, registered a significant improvement and provided a big support to the financial managers of the country.
The macroeconomics stability came under threat because of the large slippages in the budget estimate for the year 2009-10.
Lower than the targeted real GDP growth and adverse law and order situation resulted in lower than targeted tax collection.
As stated in a recent report of the Asian Development Bank (ADB), Pakistan economic crisis eased a little in the year 2009 as the IMF supervised stabilization programme took effect. In 2009, as per ADB report, Pakistan was envisaged as one of the few countries of the world where production rose by about 9 percent in a year coming to about 24 million tons. Sugarcane is the second largest crop and ranks fifth in respect of acreage in the world. Despite these encouraging indications in ADB report the unfortunate fact is that the people of Pakistan have faced the worst crisis and shortage of wheat flour and sugar during the outgoing year despite much publicized efforts of the present government. Despite increasing wheat support price, announcing Benazir Income Support Programme, and taking attempts to stabilize fluctuations in food prices, the fact remains that a large number of people are still starving. Government officials claim that wheat and sugar supplies are abundant and blame distribution system, hoarding, and manipulators who are all out to fleece public to maximize their profits. Again, the incumbent rulers are to be blamed for this scenario.
During the year 2009, the government failed to arrest ever-increasing poverty or spur industrial growth, as the interest rates remained very high, rupee continued to lose its value, inflation stayed in double digit, electricity and gas shortages persisted.
The depression in economy cannot be blamed entirely on the terrorist activities. Poor governance and incompetence has compounded the impact of terrorism on the economy. The government's claims on improved macro-economic indicators during past 12 month are restricted to increase in foreign exchange reserves and inflation only.
The foreign exchange reserves improved because of over $5.5 billion received so far from IMF and increased workers' remittances. Inflation has declined but still in double digit, which is extremely painful for the poor. The inflation is on rise again despite very tight monetary stance of the central bank. The policy rate of the bank at 12.5 per cent is still very high and most of the industries cannot afford to borrow money from the commercial banks at policy rate plus a premium of 2-5 per cent.
The rupee that stayed stable for most part of the year has started losing its value against the US dollar in past six weeks. The year was painful for all segments of the society.
In the industrial sector the textile sector could not take off, the engineering sector remained under pressure, the steel melting industry is in doldrums, car production has not reached even 50 per cent of the peak attained in 2007, and the large-scale manufacturing sector registered negative growth during past 12 months.
Tractor manufacturing sector was the only exception as it registered growth of over 20 per cent in calendar year 2009. In the services sector the boom seen in telecom during past three years slowed down perceptibly in 2009. The construction activities remained slow, tourism was worst hit by the terror threats, occupancy in hotels remained much below five years average.