ECONOMY OF PAKISTAN DURING 2011-12
PROFESSOR SAEED AHMED SIDDIQUI
Aug 6 - 12, 2012
RATE OF INFLATION: The Persistent increase in general prices is termed as 'inflation' which leads to economic hardship in relation to the the common man. Inflation is measured through the rise in general prices compared to the standard level of purchasing power. The most used and common measure of inflation are CPI (consumer price index) which measures consumers' price and GDP Deflator.
Pakistan is not the victim of inflation but 'hyper inflation' due to which leading a normal economic life by a common Pakistani has become extremely difficult. The rate of inflation in June 2011 in Pakistan was recorded at 11.30 percent. Historically, the average rate of inflation during 2003-12 had been 10.6400 while the highest rate reached to the extent of 25.330 in 2008.
Inflation in Pakistan is controlled by raising salaries in every budget.
BALANCE OF PAYMENTS: Balance of payments refers to a minus difference between export earnings and import expenditures during a specific financial year. This situation explains that our export earning lags behind the expenditure on imports (X-M=balance). The negative or adverse Balance of Payments of a country puts it in indebtedness of the country with which means a deficit in the trade balance. The indebtedness provides the opportunity to the creditor country to exploit the debtor country socially, politically and economically as is being done currently within Pakistan.
Pakistan, in the last few years, has been facing a deficit balance of payments persistently due to which Pakistan will have to face a big challenge in Macro Economic Indicators in the future. Ever increasing import bills and mounting debt services are decreasing foreign exchange reserves of Pakistan very fast. On the other hand, exports and FDI (foreign direct investment) are also falling every year. In the light of this situation, it is expected that the current account deficit would cross the limit of $ 3.5 billion or 1.5 of GDP. According to the State Bank, these figures would be $ 5.5 billion or 2.4 of GDP. Economists estimate that the trade deficit will cross the limit of $ 14.5.
AGRICULTURAL BACKWARDNESS: Being an agrarian economy, economic prosperity and development of Pakistan is directly attached with the agricultural sector. Pakistan, just after its inception, has been the victim of various problems like inequality, wars, terrorism etc. In other words, during the last 65 years, this country did not have a moment of contentment. Among all the problems, economic problems are the main issues and the main causes of economic problem such as mismanagement and lack of proper planning. The base of economic problems of Pakistan rests on the backwardness of sources of revenue which is nothing but agriculture. Moreover, the agricultural sector is kept backward by problems such as small farm sizes, subsistence cultivation, general and chronic poverty of farmers, use of outdated tools and techniques of cultivation and acute shortages of water for irrigation.
It is the Irony of our fate that we claim to be an agrarian economy but are compelled to import food grains through huge expenditures of foreign exchange every year due to a backward agricultural sector.
BACKWARD MANUFACTURING SECTOR: Industry, after agriculture, is second largest sector of Pakistan contributing 18.4 percent to GDP. Manufacturing sector showed 3.3 percent negative growth during 2011 as against 2010. Large scale industrial sector witnessed negative growth by 7.7 percent. Nationalization of industries in 1972 had ruined the industrial base of Pakistan. Revival of industries would be possible through a privatization policy if it could be implemented.
REMITTANCE: Remittance a large source of foreign exchange earnings for developing countries like Pakistan. During 1999-2008-9, remittance, in the developing countries, increased by 328 percent while remittance in Pakistan was $ 1 billion during 1999-2000 which increased to $ 9 billion during 2008-9. During the last 6 months, a sharp decline in remittance had been noted in Pakistan. Moreover, a further decline is expected in the future due to the economic crisis. One of the reasons for the decline in remittance is also investment in estates rather in productive activities.
Remittance aids and supports increase in economic growth, improvement in general living standard, reduction in poverty and controlling and improving Balance of Payments. The dominant proportion of remittance was dependant upon the amount sent by middle class people working in Middle East countries. In August, 2011, $ 310 million were remitted in Pakistan which declined to $ 890 million in September, 2011 showing a decrease by 32 percent. One of the causes this substantial decline was worsening of relationship between US and Pakistan. But the main cause of the 3 rupees difference between Inter Bank Rates and the Market Rates. For increasing the remittace, the Government of Pakistan should make not only Inter Bank Rates and the Market Rates stable but 'Hawala' system of remittance should also be stopped.
STOCK MARKETS: Expansion and development of stock markets is an indicator of economic growth and development. Karachi Stock Exchange, Lahore Stock Exchange, Islamabad Stock Exchange and Sialkot Trading Floor are engaged as stock markets in Pakistan. In the first four months of 21st. century, KSE (Karachi Stock Exchange) showed remarkable efficiency. The stock market capitalization value in 2005 was $ 5,937 million but it showed a sharp decline in 2008 immediate after General Election in the county due to uncertain political environment, terrorism on the western border of the country, fast pace of inflation, and current account deficit. Consequently, dramatic deterioration took place in the corporate sector. Nevertheless, the market bounced back strongly in 2009 and continued till 2011.
EMPLOYMENT: A few decades back, large numbers of youth had been added to the labor force in Pakistan due to a fast population growth. Firing from jobs as a result of past red tape expedited the intensity of unemployment in the country. Women, due to high rate of inflation and limited wage rates, are compelled to join the labor force so that their families may be supported financially. Consequently, fuel was added to the fire of unemployment. The present rate of unemployment in the country is more than 25 percent.
ENERGY CRISIS: Pakistan has been facing an acute shortage of energy leading to the running of producing units under capacity and fall in production. Fall in exports pressuring the foreign exchange reserves. This stage of affairs in energy sector has been discouraging FDI (Foreign Direct Investment) for increasing economic activities. In addition to curtail in incoming of FDI, the foreign companies are planning to withdraw their invested capital from Pakistan. Energy crisis is decreasing tax revenue of the government. As the General Elections in the country are approaching near, the Government of Pakistan can't afford the bold steps to put the economy on right track. Ultimately, the government, to cope with its lavish expenditure, would further borrow excessively internally as well externally or assistance would be acquired from arbitrary tax measures.
CUT IN MAJOR ECONOMIC TARGETS: The government of Pakistan is planning and working on a cut in major economic targets. As a result of this policy, the responsibility of financing the social sector is being transferred from (PSDP) Public Sector Development Program to the provincial governments.
GROWTH RATE: According to the report extended by UNESSAP (United Nation Economic and Social Survey of Asia and Pacific), the growth rate of the economy of Pakistan will be 4 percent in 2012 which was 2.4 per cent in 2011. The main cause of increase in growth rate is post-flood recovery of wheat, rice, cotton, sugar cane and other minor crops. One of the reasons of increase in growth rate is also the cut in monetary policy by the State Bank of Pakistan. GDP growth rate was recorded 3.8 percent in 2010 which decreased to 2.4 percent in 2011 because Pakistan faced unprecedented floods, sharp increase in oil prices, short fall in electricity and natural gas.
POLITICAL CORRUPTION AND ECONOMIC DEVELOPMENT: Corrupt politicians in Pakistan have entangled the economy of the country into a thought provoking situation while the nation of Pakistan is waiting for a miraculous development strategy. Our policy makers, for economic growth and development, see towards IMF and multilateral donors. According to Transparency International, Brazil, China and India are included in the corrupt countries of the world. But when the economic performance of Pakistan is compared with these 3 corrupt countries, a massive difference is observed. The difference is that these 3 countries have better institutions which can take delayed decisions for achieving quick results but do alot to deviate from the principles. Contrary to it, the contracts of billions of rupees are awarded without any rules and principles. Our bureaucrats, avoiding the rules, believe in keeping the present rulers pleased. Despite being corrupt , Brazil, China and India have established the record of development while the economic condition of Pakistan is increasingly declining.