July 19 - 25, 2010

Having suffered more on account of internal political and economic follies and less on account of external effects of global recession, Pakistan's economy is struggling to shrug off the combined effect of the two factors. With the macroeconomic indicators for the eleven months of the outgoing financial year having entered the statistical record books, we have a clear view of what has already happened and what there is in the store for us.

Without questioning the accuracy of GDP growth which has turned out to be 4.1 percent, courtesy some prior years' adjustments we move to discuss the much criticised issue of a high fiscal deficit. What else we could have expected under the given circumstances with almost every thing going the wrong way; from high government borrowing for non-development expenditure to a shortfall in revenue target; from an acute energy crisis to a deteriorating law and order condition, etc. But the specter of an "unmanageable deficit" needs not to be raised unnecessarily. Five to six percent, or even slightly more, is quite manageable in the case of a potential economy like Pakistan's. The size of fiscal deficit is not out of tune with the economies of the region. So, rather worrying about the size, we should focus on the effects of the deficit. Did it provide a stimulus to the economy? If not, then we should talk about removing the bottlenecks in the economic progress.

Agriculture sector, estimated to record a growth of two percent against a target of 3.8 percent, has once again proved a disappointment. While cotton output recoded a significant positive growth, the other major crops, wheat, rice and sugarcane, are likely to end up with minor variances on both sides. The export figures of 18 billion dollar plus owe much to this starchy crop.

The drop in wheat consumption has created a surplus position, a rare economic event. The fears are that masses below or around the poverty line have cut on their food consumption for affordability reasons. This is a serious issue and needs to be investigated in minor details. On an optimistic note, one could assume that the shift in food habits from wheat to rice could be the reason.

Large scale manufacturing sector (LSM) has recorded a positive growth of 4.5 percent during 10-month period of FY-10 in sharp contrast to a negative growth of 8.5 percent during FY-09.


2002-03 4.1 7.2
2003-04 2.4 18.1
2004-05 6.5 19.9
2005-06 6.3 8.7
2006-07 4.1 8.6
2007-08 1.1 4.8
2008-09 4.7 (8.5)
2009-10 2.0 (Provisional) 4.5 (10-mth)

The comparative table showing agro-manufacturing growth during the last eight years is a sad commentary on our perception of state governance. We keep on singing about the superiority of a system that has a long history of economic disappointments. During the five year period (2002-07), the two sectors in-combo recorded an average annual growth of 17.2 percent under a system that is now openly maligned and condemned by the vested interests. During the next three years (2008-10), the average annual growth came down to 2.9 percent.

Keeping aside the issue of governance system, we can statistically prove that Pakistan's economy under a low-interest regime and unrestricted flow of credit tends to grow more quickly than it does in opposite conditions. Ensuring the end use of credit and its flow to the genuine sectors of economy (and to the credit worthy borrowers) are purely administrative issues which should not be confused with the economic imperatives of a model.

On external account side, the country has made record exports of 18 billion dollars during the financial year 2009-10. This has helped to bring the trade deficit down from $15.3 billion to $13.9 billion during the 11-month period. Thanks to the ever-increasing inflow of worker's remittances, the current account deficit at the end of May 2010 stood at $2.98 billion against $8.68 billion standing at the end of May 2009.

Like deficit size and tax to GDP ratio, foreign investment is yet another sore point in Pakistan's economy. We know that under the prevalent conditions, we cannot expect to record any unusual growth in foreign investment. We should, therefore, stop worrying about it and shift focus on goals that are easier to attain. Foreign investment is a bonus to which we become automatically entitled when Pakistan's economy shows progress and its market offers something to the foreign investors. We better should concentrate on producing foreign-market-worthy human material to keep the flow of workers' remittances. Remittances touched a record mark of nine billion dollar during the outgoing financial year.


(11- MTH)
Foreign investment 4,486 8,428 5,450 2,227 1,897
Worker's remittances 4,600 5,494 6,451 7,076 8,063
Total 9,086 13,922 11,901 9,303 9,960

External debt and liabilities, on 11-month basis, have increased from $49.5 billion to $54.2 billion due mainly to the release of committed loan installments by foreign lenders. Release of installments is reflected in the increase in foreign reserves that currently stand at $16 billion plus. The reengaging of old foe IMF was our own choice as we wanted political transition from one system to another. Does democracy have an economic cost? Perhaps yes, at least for us.