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State of Pak economy

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ARTICLE  (October 31, 2010) : The success story of a country depends upon accomplishments on four fronts namely, Political (strong democratic set up for the well-being of the people of the country), economic (socio-economic development with prosperity across the board), social (elimination of social evils and ensuring social stabilisation with peace and harmony in the country) and technology (institutional framework through a breakthrough with innovation and invention as logistical support to all-round development of the country).

However, this piece looks at the broad framework focusing on economy of Pakistan. Recently, the Annual Report of State Bank of Pakistan for 2009-10 has been released. It presents a forthright analysis of the state of affairs of the economy of Pakistan. It generates food for thought and provides insights for forward thinking.

Along with the Annual Federal Budget, the Government of Pakistan publishes Pakistan Economy Survey on an annual basis. Since the annual budget is announced in the month of June, the data included in it is generally released nine months ending March 2010. However, the Annual Report of State Bank of Pakistan is generally released in the month of October and contains data upto 30th June of every year. It is a matter of great pleasure to note that the above report has recently been released in two volumes. The first volume contains descriptive material and the second volume contains statistical data. In the light of information released in the above report and based on other sources, this piece has been developed with a view to evaluating the economy of Pakistan in respect of various accomplishments during the year 2009-2010 and the challenges which Pakistan faces on the economic front in the future.

GDP REVIEW As against the GDP growth of 1.2% during the Fiscal Year (FY) 2009, GDP growth during 2009-10 was recorded at 4.1%. However, the target for GDP growth for 2010-11 was hopefully forecasted at 4.5%. To our misfortune, colossal losses resulted from the unprecedented floods which hit Pakistan with effect from July 26, 2010. By now, the devastating floods are over. In this backdrop, all kinds of estimates are being released. Some economists think that GDP growth during the said year is likely to be around 2%. Some have optimistic views and their opinion is that it can range from 0 – 2%. However, the State Bank of Pakistan in the above report has an optimistic view of GDP growth in a range of 2 – 3%. If concerted efforts are undertaken by the Government of Pakistan in particular and by all stakeholders in general, the above forecasted GDP growth may be possible. With commitment and dedication, full efforts need to be initiated and unleashed to achieve this coveted goal.

TARGETS FOR THREE YEARS MEDIUM-TERM PLAN As a broad guideline, the Government of Pakistan released the following indicators along with the annual Federal Budget FY 2010:

AGRICULTURE SECTOR Due to water shortages, decline in the availability of certified seeds and uncertain outlook of rice and sugarcane, unfortunately, the agriculture sector only recorded a growth of 2% during the fiscal year 2010. Fortunately, livestock, which constitutes 50% weight in agriculture, recorded positive growth but there was a marginally negative growth in crops. Consequently, the full potential of agriculture sector, which hopefully is upto 9-10% could not be achieved. During the fiscal year 2011, there will be a decline in cotton and sugar-cane and therefore, the probability is that agriculture is not likely to register a significant growth as a contribution to GDP, which would be a negative factor affecting the increase in GDP during Fiscal Year 2011. However, minor crops eg fruits, vegetables, spices and food items registered high increase in prices due to consequential effects of floods. It is humbly suggested that agro-based industries should be established for tomato paste, onion syrup bottling and other items of daily use so that the inter-season shortages can be reduced to the most minimum.

INDUSTRIAL SECTOR As against decline in LSM growth during the fiscal year 2009, it recorded a positive growth of 4.9% during the fiscal year 2010. This was possibly due to relatively lower inflation, improved prospects of economy and supportive macro-economic policies. Concurrent to this, SMEs also recorded a positive growth of 7.8% during the above year. The need of the hour is to divert greater flow of funds to SMEs as they can greatly contribute as employment driver in the country. This has recorded sustainable growth in the past, notwithstanding economic shocks.

Fortunately, construction as component of industrial sector recorded an increase of 15.3% in FY 2010 as compared to a contraction of 11.2% in FY 2009. This was instrumental due to some supportive efforts of the Government in terms of reduction of duty on cement sales, decline in the global prices of coal, iron and wood. Happily, the private sector made a good contribution in this area.

The golden chapter of Pakistan lies in the high performance of mining and quarrying, which unfortunately registered a decline of 0.2% in FY 2010. This mainly contributed to lower production of crude oil and coal. However, it is suggested that the democratic Government of Pakistan should pay special attention to mining and quarrying sector as all the four provinces of Pakistan, including Azad Kashmir has tremendous hidden resources which need to be exploited for ensuring rising prosperity of the country. In this respect, it suggested that a Mineral Policy be announced.

SERVICES SECTOR The services sector constitutes 52% of the GDP of Pakistan. During FY 2010, it registered a growth of 4.6%. The growth was observed due to technical and skill-basis services eg telecommunication, software development and in accounting and finance.

Considerable finances are needed to accelerate the developments of infrastructure in the country through construction of small and big dams, development of farm to the main roads for avoiding the wastage of vegetables, strengthening old bridges, ensuring breakthrough in the insurance sector as an employment driver, a significant decrease in non-performing loans in the financial sector, allocating greater funds to social sector (education and health) and extending logistical support for laying a sound foundation for institutional development of invention, R&D and innovation.

All stakeholders, at home and abroad, may be approached to channelize their funds to strengthen the foregoing logistical support to help develop laying sound foundation of infrastructure. Economists believe that if infrastructure is strengthened, economic development follows and therefore the future augurs well for a prosperous Pakistan.

PRICES Inflation is a big monster. It eats into the vital of the wage basket of lower strata of economy and fixed salaried group. The present democratic government deserves appreciation for protecting the wage basket of salaried class for having announced increase in the salaries through three instalments aggregating to 80%. However, so far during democratic set-up, total inflation has been 44%. The basic reason for inflation is considered as an area of improvement in governance so that the artificial shortages are reduced to most minimum, smuggling is contained at zero level, various malpractices such as hoarding etc are eliminated and full attention is focused on increasing the supply side of goods and services to ensure greater flow of goods particularly food supply in the market.

It is humbly suggested that Sensitive Price Index (SPI), introduced during late Z.A. Bhutto’s time be given a special attention so that the downtrodden, poverty-stricken and all those who belong to lower income group are given special and focused attention. This will enable them to meet their basic needs and stay away from the consequential disastrous effects of inflation that causes and upsets the kitchen economics.

PUBLIC FINANCE The crying need of today is to accelerate the base of domestic resource mobilisation efforts in Pakistan. There is a tremendous potential and the democratic government must inspire the people of Pakistan by providing leading role in terms of persuading patriotic citizens of Pakistan to respond to their responsibilities of paying due and appropriate taxes (direct and indirect) as tremendous potential exists in the country.

We need to ensure a breakthrough success in this dimension so that our reliance on foreign loans is reduced, our economic sovereignty is properly restored and our self-reliance as a guiding inflexible rule is implemented to the advantage of the country.

For this, the political will needs to be demonstrated by reducing rebates, discounts, allowances, reliefs etc allowable in the Second Schedule of the Income Tax Ordinance, 2001 so that as against 2.3 million people to file Income Tax Return during 2010, the untapped potential of around ten (10) million and above be brought into the net of the income tax.

If this goal is achieved, public finances will be strengthened, reliance on foreign assistance and domestic loans will be reduced substantially and a new era of self-reliance will dawn in Pakistan to the bouncing pleasure of the masses of the country.

EXTERNAL SECTOR The prosperity chapter of Pakistan can be seen as a lesson from Far Eastern countries, which successfully followed export-led growth. As against a total population of 185 million, we have still to cross the threshold of annual exports to the extent of US $20 billion. Potential exists in the country in setting our house in order.

A breakthrough approach is suggested whereby export processing zones may be established in every divisional headquarter in all the four provinces and expatriates of Pakistan are motivated and encouraged to come back to Pakistan and establish industries for exports in the above Special Export Processing Zones.

All hurdles and roadblocks in this respect should be immediately removed and a courageous effort by the Government of Pakistan should accept this challenge and Pakistan will see a major increase in the export of our country and this will also help in reducing the pressure on the foreign exchange rate, which is now around Rs 87 to one US dollar as compared to Rs 61 per one US Dollar in January 2008.

CONCLUSION It is our earnest desire to see a new economic dawn of Pakistan where basic needs of the people are met, prosperity era ushers in across-the-board and the purpose for which Pakistan was born on August 14, 1947 is accomplished by evolving socio-economic system based on Quran and Sunnah to strengthen the Islamic ideological front of the country. This will enable to earn high degree of respect in the comity of the nations. No doubt, challenges are big but we ought to accept these challenges and achieve the goals.

Declining trends in all the above three years:

1) Public Debt.

2) Fiscal Deficit.

3) Current Expenditure.

The economic managers of our country are urged to monitor the accomplishment of above targets.

(The writer is Professor Emeritus and Founder Principal of Hailey College of Banking & Finance, University of the Punjab, Lahore)

Copyright Business Recorder 2010

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