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ECONOMIC POLICIES &
GROWTH IN PAKISTAN
In the last few years Pakistan has
seen a tremendous growth in its economy and its economic environment.
While the political situation remains as tangled as before,
the economic recovery from the days when it was reported to
be on the brink of bankruptcy has been remarkable.
After six years of extensive efforts
by the Government, through the reform of tax system and tax
administration, Pakistan has succeeded in attaining fiscal
stability. According to recent state Bank of Pakistan report
the Reserves stood at all time high last year at $13 billion
– up from $12.3 billion a year before, and is expected to
grow even more this year. This has provided strength to the
Pakistani Rupee against the US Dollar. The government believes
that the key to its success of economic policies is continuity
and consistency. It has remained on track in carrying out
its economic policy, developed 6 years ago and remains committed
to pursue this stance in the future also. This is very much
based on its commitment to further liberize, deregulate and
privatize the economic regime in the country. It has also
provided a greater space to the private sector to shoulder
the burden of economic development.
Although the recent increases in the
cost, related to the imports of oil and machinery, is having
a tremendous effect on the economy, the Government believes
that in long term the rising investment in machinery and inputs
should be reflected in higher export earnings as well as import
substitution. The sharp rise in these imports is having an
effect on the economy.
During the last few years, the Government
has tried to introduce measures that have helped to strengthen
the economic base, improved it’s infra structure, created
an investor friendly environment and have offered various
incentives for investors.
To this end the Government of Prime
Minister Shaukat Aziz is working with a wide ranging agenda
of reforms and progress, as initially visualized by President
Pervez Musharaf, and aimed at strengthening democracy and
democratic institutions, enhancing internal and external security
thus improving law and order, promoting good governance, accelerating
pace of economic development and its sustainability and taking
the benefits of economic growth to all segments of the society
as well as preserving the cultural heritage of the country.
Economic growth and distribution of
economic benefits to the people is the prime goal of the current
government. Thus the economic reforms agenda initiated by
the Government is aimed at creating a stable and growing economy.
It sees areas like Agriculture as an important area of both
economic growth as well as poverty reduction area. In its
annual performance report (August 2004-August 2005) the government
states “Accelerated growth of agriculture, especially high
value agriculture is key element of the present government's
overall strategy for poverty reduction as it contributes most
to poverty reduction and employment generation, particularly
in rural areas, where poverty is high”. To this end the Government
has also taken some new initiatives like “Aik Hunar Aik Nagar”
agri-business development scheme including special initiative
on livestock.
Pakistan’s economy extended its economic
performance for the third consecutive year in row (1995) at
8.4% real GDP growth. This was much better than expected,
against the targets set particularly in areas like manufacturing,
agriculture, and services sectors, indicating a broad based
growth. Per capita income in dollar term, stood at $736. Coupled
with sharp decline in Public debt burden in the last five
years with significant improvement in fiscal situation, debt
swap arrangements on voluntary basis with amounts of more
than $700 millions, offered by several countries, helped significantly
in this policy. During this period an economic assistance
to the total tune of $2.9 billions from various multilateral
and bilateral development partners was generated.
The other area that the government
has been concentrating on is the privatization and sale of
shares in state owned companies like the PTCL, Banking etc.
To achieve the maximum , a Privatization Commission was set
up that is ensuring that maximum benefits are derived from
such sales and that the new owners are not only helping to
improve the governance of such companies but are bringing
real benefits to the ordinary people of Pakistan.
The robust growth in telecom sector,
significant performance in banking, insurance and wholesale
and retail trade surpassed the growth target by a wide margin,
according to government reports. A 76% increase in cellular
telephone connections to 8.8 million in February 1995 and
160,000 WLL connections given in the first eight months of
the year shows a continuing expansion in this sector.
However the government recognizes that
the pace of current economic development cannot be sustained
without a significant expansion in country’s existing stock
of key infra-structure such as Water storage, power generation,
roads, railways, ports, airports and telecommunications and
is committed to expend requisite efforts to meet these critical
needs of economy. It believes that the development expenditure
is the main policy instrument for achieving this goal and
that through increased development will result in large opportunities
for employment and spur growth in industries that provides
inputs for capital works.
The Government has formulated its 2005-06
plans to achieve the above and have committed Rs.272 billions
against Rs.202 billion in 2004-05 showing an increase of 34.7%.
This has been enhanced by additional investment of Rs.43 billions
by the public sector corporations from their own resources.
The sectors that are going to be the principle beneficiaries
of these are Water, Power, Petroleum and Natural resources,
Communications, Ports and shipping and Railways. The plan
also envisages a fall in the annual inflation rate. This has
been highlighted by a recent report by the State Bank of Pakistan.
It stats that the “relative slowdown in the economic activity,
together with improvement in food supply (stemming from a
better minor crop harvest and government supply-side intervention),
is contributing to a relative weakening of domestic inflation.
CPI inflation continued a trend decline throughout the first
half of five months of financial year 06, consequently dropping
from the peak of 11.1% in April 2005 to reach 7.9 by end November
2005”.
The SBP also stipulates that the real
GDP growth is likely to remain at well above the 6 per sent
long term trajectory, and there is a strong expectation that
CPI inflation will remain at 8% level, in line with the annual
target, by end June 2006. However, potential emergence of
large fiscal and external imbalances pose threats to the sustainability
of these positive trends.
The Bank also warns that while the
inflation is falling it needs to be reduced even further even
at the cost of sacrificing some growth in the short term.
This is essential, the bank believes, as a fall in inflation
will allow for an easing of monitory policy, there-by supporting
long term growth and countering any cyclical downtrends, and
that elimination of emerging macroeconomic imbalances will
also be essential to sustaining long term growth in the economy.
The Bank also argues that while fiscal
discipline is required, this cannot be at the expense of development
expenditures, as this will lower the productive capacity of
the economy, thereby contributing to even greater deficits
in future.
The government is developing several
new initiatives to boost the economic growth of the country.
These include Industrial Parks, Technological up gradation,
setting up a Ministry of textile Industry, Textile City, Garment
cities, Agri-business development Projects, Livestock productivity
as well as programmes that will enhance competitiveness, improving
quality and standards, increasing market access, Human resource
development to name but the few.
However the key risk to the economic
growth or achieving the stated goals can be hampered by the
shortage of skilled managers, technicians or trainable general
labour force. This is already evident in high growth, sunrise
industries in Pakistan, including telecommunications, IT,
high valued textiles, telecast media, finance etc. This is
indeed a tragedy for Pakistan, where persistent skill-set
mismatches, which despite employment opportunities, keep unemployment
high, raise poverty and lower the country’s growth potential.
The government will have to examine this area and ensure that
any potential external or internal investment is matched by
the skilled workforce that will require.
