Signs of gradual revival of the economy

                                                                             By Mohammed Arifeen

The State Bank of Pakistan has projected GDP growth at the rate 2.5 to 3.5 percent for the current fiscal year 2009-10. It envisions the rate of inflation to be to be at the rate of 10 to 12 percent, half of previous year. The government has established terthe GDP growth rate growth rate for the current financial year at the rate of 3.3 percent while IMF has anticipated at 2 percent growth. According to IMF while the risks to Pakistan’s economy remained, the early signs of recovery in some sectors were encouraging. 

In the financial year 2008-09 the budget deficit reduced by 2.4 percent to 5.2 percent of GDP. The tough macro- economic stabilization with the support of IMF was partially responsible for the reduction in the fiscal deficit.

Agriculture the main stay of the economy performed well in the fiscal year 2008-09 and attained a growth of 4.7 percent against the target of 3.5 percent principally due to the higher supply price. During this period both the major agricultural crops and the livestock sub sector displayed above target growth. Significant feature of the growth this year was the record harvest of the crops like wheat, rice and maize that collectively accounts for 59 percent of value addition by major crops and in this fiscal year this share achieved 63 percent. The government believes that this year bumper crop of wheat would surpass the wheat crop produced in the past year.

During 2008-09 Pakistan received $7. 811 billion as workers remittances.  This facilitated the government to build a foreign exchange reserve of $14.75 billion the highest level registered since 2006-07. It is expected by the end of the year 2009 and 2010 the workers remittances would be up to $ 9 and 12 billion respectively. Trade deficit stood at $2.75 billion in the first quarter of the fiscal year 2009-10 as compared with $4.51 billion in the same period of the past year. Current account deficit dropped by 3.796 billion during the July- September of financial year 2009-10. It is projected that current account deficit would be around $2.25 billion in the current financial year.

With the significant drop in current account deficit, substantial increase in workers remittances, lowering of inflation, decline in fiscal deficit and agriculture repeating the same performance as that of last year there is optimism that there is gradual economic recovery. Further the increase in import in the first quarter of the current financial reflects an increasing domestic demand. Also the positive growth in the large scale manufacturing sector in the same period shows signs of economic stability in the current fiscal year. Full economic activity will take a longer time to recuperate due to negative business sentiments prevailing in the private sector.

Both Pakistani and foreign ivestors are shying to invest in Pakistan. Total investment was down to 19.7 percent of GDP from 21.5 percent a year earlier. The investment declined by 6.5 percent-largest fall in 40 years. During the last few months of the current year it has shown no sign of any improvement. Growth in private was 13.2 percent of GDP – lowest since 1998-99. Security fears and persistent power crisis are driving away both the foreign and private investors.

Exports as percent of GDP have degenerated from 13.2 percent in the financial year 2004-05 to 11.5 percent in the financial year 2008-09. National Savings as percentage of GDP despite ameliorating to 14.3 percent in the fiscal year 2008-09 from 13.4 percent in the financial 2007-08 is still the second lowest in eight years.  

In the financial year 2008-09 the large scale manufacturing output declined by 8.7 percent- the first in 62 years. Mining and Quarrying recorded the lowest growth in eleven years.

The construction industry recorded a substantial decline of 10.8 percent in 2008-09- the largest fall in 37 years. The surge in prices of building material and a major reduction in disbursement of development projects and scarcity of financing facilities caused the construction industry to contract significantly. The services sector which had been showing significant growth in the past years grew by only 3.6 percent in 2007-08 “the lowest growth in the past eight years”.   

Debt servicing – to- total revenue ratio rose to 49.1 percent in 2008-09 from 45.3 percent in 2007-08. Total debt and liabilities stocks registered a phenomenal growth of 27 percent in the fiscal year 2008-09. According to State Bank of Pakistan persistent growth in the stock of total debt and liabilities depicts that imbalances in the overall fiscal account as well as the country’s current account are still large. For the second consecutive year, the target of 2.5 percentage point reduction in foreign debt and liabilities as percent of GDP has not been met.

Around 62 million out of the total population of 170 million have fallen below the poverty line. According to World Bank report poverty has reached 36.4 percent.  The rapid rise in poverty is due to surge in inflation and reduction in subsidies. In Pakistan, the share of “severely food insecure population” was also expected to have increased from 23 percent in the financial year 2005-06 to 28 percent in 2007-08.

The economic recovery though gradual but still most serious economic issues have to be settled once for all. The government should come up with programmes to root out terrorism, raise the tax to GDP ratio by gradual documentation of especially the agriculture sector which could immensely contribute substantial tax revenue to the government treasury. The Federal Board of Revenue must develop the data to curb tax evasion from the powerful political elites. In order to eliminate rising poverty the government take vital economic projects for providing jobs to million of unemployed educated, skilled and unskilled labor.

Too much dependence on  aid from the friendly countries of Pakistan for political interest and strengthening of laughing democracy will not bring any sort of economic prosperity either in the short run or even in the long run. No friendly countries will come to rescue the economy of Pakistan unless it shows its own awareness and efforts to improve the lot of the bulk of poverty stricken population. The country requires uninterrupted supply of power like gas and electricity to the industrial and agricultural units for accelerating domestic production and boosting exports. In this context the vital textile industry not to be sidelined and all its problems be sorted amicably by the government.

Pakistan’s high level of economic strength lies in the vast development of agriculture. The country’s emphasis should be on greater investment on agriculture. Priority should be to produce surplus food commodity for the hungry stricken people at reasonable rate. With better water management, introduction of mechanize method of cultivation, storage and marketing facilities there is no reason why Pakistan cannot develop this major sector which contribute 20 percent to GDP and  provide jobs to about 40 percent of the population.

Last but not the least the austerity drive should cover the entire Pakistan.This must include not only the government sector but also the private sector. Mere half hearted measure will not bring any good result to the economy of Pakistan. Several developed and under developed countries in the economic hour of crisis have taken full hearted austerity measures and were economically benefited.