Economic indicators speak loudly
By Mohammad Jamil

THE National Economic Council meeting chaired by Prime Minister Shaukat Aziz has accorded priority to the water sector and development of energy, infrastructure and human resources during the period 2005-2010. The meeting envisaged Rs 2 trillion as public sector development outlay for the next five years, which would go a long way in meeting the needs of the underprivileged. The most salient feature of the programme is the determination to bring poverty level from 32 per cent to 20 per cent by 2010.

As a result of the policies framed and implemented during the last five years, Pakistan’s economic growth has been impressive. Gross Domestic Product growth rate had gone up to over 6 per cent and according to Prime Minister Shaukat Aziz it should be around 7 per cent this year.

And there is consensus among economists that higher economic growth rate is essential for savings and investment that results in employment creation and poverty alleviation. Fiscal deficit has come down to 4 per cent; current account deficit has disappeared. Foreign Direct Investment has increased from almost negative to 400 million to 950 million dollars, and foreign exchange reserves from $1 billion to $12 billions — an all time high figure.

In the late 1960s, Pakistan was a fast growing economy. Countries of the region wished to emulate, as its GDP was highest in the region; its exports exceeded the total exports of Indonesia, Malaysia, Thailand and the Philippines put together. All these countries have moved ahead whereas Pakistan is still struggling to reach $14 billion. Our economic crisis was the result of continuous plunder and mismanagement of human, economic, and other resources by those whose ambition was to acquire absolute power and wealth at the cost of Pakistan’s sovereignty. Years of wrong priorities, flawed policies and unrealistic of scarce resources led to declining GDP and per capita income, thereby turning the country into an economic basket case.

During the 1990s, the situation as to macro-economic management and governance was dismal, and Musharraf Government, which came to power in October 1999 embarked upon a serious programme of macro-economic stabilization, structural reforms and good governance. As a result of these measures, there has been turnaround in its economic indicators. According to the World Bank report, Pakistan’s economy had grown much faster than other low-income countries, but country’s social growth has lagged behind its economic growth.

One does not have to be an economist to understand the nexus between poverty and poor social indicators, as lack of access to education, primary health care and basic infrastructure limit the potential of gainful employment to the majority of people. The Government seems to be alive to the situation that despite the increase in GDP indicates and good health of the economy, it does not necessarily result in the welfare of the masses; which is now manifest in the development framework planned for 2005-2010.

The problem was that policies pursued by the previous governments were based on the assumption that with economic growth, all strata of society will benefit from the “trickle-down effect”. In fact, it requires conscious effort to ensure that benefits of economic growth reach the broad masses.

But the loans taken for development from the IMF, World Bank and others were not judiciously utilized.
Had the rulers invested those loans in income-generating assets, and in providing sound infrastructure, Pakistan would have been able to pay back loans out of the income, and had not resorted to taking more loans to pay back the previous loans. Musharraf Government rightly focused on the revival of economy, as that was the only way to generate revenue to be able to invest on human resource development.

There is seemingly a realization on the part of the Government that problem of poverty has assumed alarming proportions, which warrants steps for its alleviation.

The Government had established Centre for Research on Poverty Reduction at the Planning Commission with a view to identifying the problem of deteriorating human conditions, its causes and suggesting measures to address the problem.

The establishment of micro-credit schemes SME, development, and Khushhali Bank were the institutions established for generating self-employment opportunities with the objective to reduce poverty. A sharp increase in small and medium-scale industries producing high value-added exportables is being aimed at by providing necessary support system because such enterprises as are known to generate higher employment output and exports per unit investment compared to large-scale manufacturing.

But there has to be massive investment, as it is major determinant of economic growth — a mechanism of employment generating and poverty alleviation. The rates of savings and investment, however, are inadequate to meet the challenges of unemployment and poverty alleviation. The basic reason for Pakistan’s debt problems also arise from inadequate domestic savings, which compel Pakistan to borrow. As a result of insufficient savings, the investment level is not enough to provide jobs to the unemployed. Pakistan’s savings rate is 16 per cent of the GDP, which is the lowest in Asia.

Another problem is that local or foreign investors are hesitant to invest in an environment of unsatisfactory law and order situation. It should be borne in mind that lower rate of return on savings as compared to the rate of inflation discourages savings, and as a consequence investment also.
Secondly, price inflation can also be triggered by cost-push inflation in contrast to demand-pull inflation, and sometimes both may complement each other. It is, therefore, imperative to review the price mechanism for fixing prices of petroleum products, which together with high electricity tariff will have a ‘multiplier effect’, resulting in an increase in general price-level. In view of increase in cost of production, Pakistani products become uncompetitive in the international market.

Mindful of the basic need for developing infrastructure, the Executive Committee of National Economic Council approves allocations for development projects. Last year, the ECNEC had approved 28 projects with total outlay of Rs 193 billion. And major allocations were made for water and energy projects, construction of deep-sea port at Gwadar, and roads in Balochistan, which will have a favourable impact on the lives of the people. In a meeting held the other day. The ECNEC has approved 39 projects worth Rs.124.5 billion. These projects are aimed at meeting development needs of the country; create better infrastructure, create job opportunities and increase industrial and economic activity in different parts of the country. Secondly, this will help create national unity, as people of all provinces will benefit from these development efforts.

President Pervez Musharraf is of the opinion that the NFC should be reconstituted without delay, and that he wants 50 per cent of the divisible pool for provinces.

This would remove the irritants between the federation and federating units. It can be hoped that the provinces would work out a formulae to distribute their share amongst them equitably and amicably. In democracy, the difference of opinion between the ruling party and the Opposition parties is a natural phenomenon, but there is need for reaching consensus on the objectives of stability, solidarity and security of the country, and also on improving the living standards of the people.●

© 2005 Mohammad Jamil