How Pakistan Is Picking Itself Up

[Neo]

Prime Minister Shaukat Aziz talks about efforts to deregulate and build the economy while overcoming the recent earthquake and fighting terrorism


Pakistani Prime Minister Shaukat Aziz traveled to New York and Washington in late January to meet with President George W. Bush, as well as U.N. officials and investors. He came at a delicate time, when U.S. forces had just bombed a Pakistani village, and while his country was still recovering from a devastating earthquake. Aziz discussed these turbulent events with BusinessWeek Senior Editor Chris Power. But the Prime Minister -- a former top executive at Citigroup (C ) -- also gave a surprisingly upbeat assessment of Pakistan's economy. Edited excerpts of their conversation follow: Advertisement

How has Pakistan fared since you became Prime Minister?
I think the single most important change is in the economy. We have transformed the mindset from that of a restricted closed economy to that of a totally deregulated economy where the three principles we work on are liberalization, deregulation, and privatization.

There's no distinction between local and foreign investment. Last year we clocked in 8.4% GDP growth, the second best after China. This year we will be close to 7%. Per-capita income is up to $736, and purchasing power parity per capita is about $2,500. The middle class is emerging, and people are doing well. Investment is at an all-time high -- both local and foreign. But still we need more. FDI last year was $1.5 billion. This year it will be $3 billion.

So you feel things are much better than they were five years ago?
Definitely. I think most people now feel that. And one indicator is that you can't find hotel rooms in Pakistan anymore!

One possible problem with this scenario is the current-account deficit, which is growing.
It's still within a safe range. The boom in imports is due to growth in the economy. When you have growth rates of 8% and demand is high, if you don't allow free imports, your price equation will get even worse. I think we are doing all right. Capital inflows are good. We haven't done anything unusual on debt. If you take the capital account into the numbers, the overall balance is pretty O.K.

What about the negative impact of oil?
Oil is looking tricky. We have sustained the high increase in oil prices. It does put pressure on our foreign exchange. But we are selling oil at market prices. There is no subsidy. It's tough. [Ordinary Pakistanis] don't like us for that. But if you subsidize, you take on debt to fund the oil bill, which is a killer.

Is the fiscal deficit feeling strain?
Our target this year is 3.8% of GDP, and we'll be no more than 4%. That increase is due to the earthquake, as you would imagine. But it's very well within control.

You want to widen Pakistan's tax base to boost revenues for the government. How is that going?
We are widening the tax base. In fact, our tax collection is doing well. We are up 33% so far this year over last year. That's all taxes -- income tax, import taxes, and the general sales tax.

Is that capturing all the possible tax revenues?No. There's still a lot of potential. That's why I keep pushing them...a 33% increase is not good enough. Keep in mind that this increase in collection is in spite of the fact that the tax rates and tariff rates are all down. Gone are the days when you can run your country or economy by building high tariff walls around it.

How is the earthquake relief effort going?
I think most objective observers will tell you they are pleasantly surprised. It's a tough terrain. You are fighting the Himalayas. Even helicopters can't land in many places. We've created two independent entities -- a relief agency, which is providing food, tents, blankets, medical care, etc., and a rehab agency, which is more long-term. It focuses on income generation, building your own home, etc.

Has mortality gone up in the affected areas?
There has been no epidemic. These are tough people. You have a lot of respiratory problems, but I've been to most of the field hospitals. I've taken 64 trips to the earthquake area. Every week I go somewhere and check. It is our goal to get these people settled back in their traditional areas as soon as possible. It will take a couple of years.

Getting back to the economy, how is deregulation proceeding?Let me tell you, it depends. In telecommunications, we have a great regulatory regime, a good regulator, tremendous investment coming in. We auctioned two licenses for cellular phones. We got $291 million each. We just sold our phone company, so we are moving ahead. In those areas it's working well.

But the Monopoly Authority, which regulates antitrust issues, needs fixing.
That's being remapped. We have a total program to reengineer and reinvent it. That's really not performing at par.

There has been some indication of hoarding and profiteering because of no monopoly control.
Some industries are accused of market fixing, but now we are going to really strengthen the whole agency and be tough.

How is Pakistan doing in developing workers' skills?
We now have shortages of skilled labor. So we have a major initiative for vocational and technical training, which we have just launched. And this is not talking about PhDs -- this is quick training for filling gaps in the economy. It's demand-driven. We've also made English compulsory in all federal schools from class one. There's no such thing as optional now.

Are the rural areas joining in the growth?
One of the best things that has happened in the last several years is farm income. Farm income is up. Farmer productivity is up. GDP grew last year by 7.6%. in real terms. Our whole strategy on agriculture is not subsidy-determined. Farmer profitability and linkage to international prices -- that was the fundamental reform in agriculture.

The U.S. is a big backer of your reform efforts.They've been a great ally and a great friend of ours.

Link;http://www.businessweek.com

 

[Neo]

Great interview provided by Aziz and indeed Pakistan is picking up itself rapidly.
Last year we recorded 8.4% economic growth, second highest after China and all the parameters are indicating that the trageted growth of 7% will be met this fiscal year with will end within few monts.
Despite the loss of Oct. 8th and high fuelprices, the economy remained well on track and that should send a signal to foreign investors that Pakistan today is a solid inverstment market whith guarateed returns.

What does it mean in terms of GDP?

Well the GDP currently stands at $110 billion, add $8 billion growth this year and another 8-10 billion next year and we have a platform to take a leap to the next level; becoming a medium income states.

PPP has surpassed $2500 mark and will shortly enter the Top100.

 

[Zeeshan S.]

Great reply Neo. It is a very good sign that our economy has arose significantly in the past years, but having an increasing giant leap of GDP was expected due to that over the sanction years our economy was in crises, so as we improved, trade agreements were signed, the sanctions were lifted, they were to be increasing like that much!

Its like you have a crashing economy and after some changes you get 200% improvement, i hope you get the idea. Once our economy gets stable, that means GDP will be no more than 2-3% growth per year, and that too is just too much for Pakistan once it is in stable position.

Basically if there were no sanctions we would be already in a stable position and our GDP would be much higher, because of sanctions we are late...... years behind.

I myself wont get happy with the economy because it has to be what it is. Foriegn investments will pour in the future once the economy is in stable position and is still continuing to grow.

 

[Neo]

Originally posted by mysterious@Feb 3 2006, 06:25 AM
Great reply Neo. It is a very good sign that our economy has arose significantly in the past years, but having an increasing giant leap of GDP was expected due to that over the sanction years our economy was in crises, so as we improved, trade agreements were signed, the sanctions were lifted, they were to be increasing like that much!

Its like you have a crashing economy and after some changes you get 200% improvement, i hope you get the idea. Once our economy gets stable, that means GDP will be no more than 2-3% growth per year, and that too is just too much for Pakistan once it is in stable position.

Well GDP has grown rapidly in real terms, but one should realise that we've changed our priceindex and current figures are based on 2003.
Doing this we get better picture on how our economy is doing.
With all respect, I think that 2-3% is way to low for a stable economy in Asia. Double that and you'll come closer to reality, but since we're picking pace and FDI is pouring in I expect Pakistan to do much better.
Current five year plan will en din 2009 and 7-8% growth is sustainable according to Worldpank. FDI doubled last year and exports grew 35%.
We have a solid platform now to take it to the next level.

Basically if there were no sanctions we would be already in a stable position and our GDP would be much higher, because of sanctions we are late...... years behind.

Not only sanctions, but mismanagement and corruption during the three last civil governments we had are to blame.
During the nineties economy like China and Singapore grew in double digits as our economy shrinked!! Poverty rose from a relatively low 26 to 35%. What a sheme!!
We can't make up for those lost years, but stay positive and focused, we're back on track now.

I myself wont get happy with the economy because it has to be what it is. Foriegn investments will pour in the future once the economy is in stable position and is still continuing to grow.

[post=5871]Quoted post[/post]​

Like I said FDI is pouring into the country, we;ll surpass the $3 billion mark by the end of current fiscal year and government is targetting $5 billion for the next year.
Privatisation is well on schedule and we've got the potential to attract as much as $40-45 billion from this sector within the current frive years plan.

We survived the EQ on Oct 8th and its aftermath and sustained strong growth despite high fuel price.
That shows the real strangth of our economy and it hasn't gone unnoticed from on the international market.

We're lucky to have S. Azaz who himself is an economist and the right man on the right place for Pakistan.

 

[Neo]

Providing water, power and gas to all

By Sultan Ahmed

AT a time when people are clamouring to have at least a small share of the fruits of high economic growth, President Musharraf has promised water, power and gas for all by 2008, and if possible by the end of 2007. On his part he means that. And he wants the prime minister and the chief ministers too to publicly make such a commitment to provide these basic services to people and actually deliver them.

Anyway the prime minister and the chief ministers are bound to honour his commitment and deliver such essential services by the early 2008. If people are cynical in their reaction to such announcements or commitments, that is understandable. They have been promised such facilities before as well by the past civilian and military regimes. And instead of getting the promised services, the conditions became worse for the common man and there was talk of great deal of corruption in such areas. People will have to see if it is really different now and that what is being promised is delivered too as well, and in full measure and not as a token or symbolic gesture.

But for the president’s commitments to be fulfilled, a great many steps are needed and there are vital prerequisites. To begin with, large funds are needed and these will have to be separated from the annual development plan outlay. And such funds will have to be adequate to meet the needs of the whole country and in time. Corruption shall not be allowed to squander such funds.

When the president says these basic facilities should become available before the end of 2007 there is a political dimension to it. General elections are due in the last quarter of 2007 and the president and the prime minister following the appointment of a new chief election commissioner have reaffirmed that. If the masses are provided water, power and gas before that date, they will be happy to vote for the ruling party.

To begin with, a study has to be conducted of the real cost of supplying water to all, including all those in the rural areas. And the cost has to be verified to make sure it is truly economic. Then the requisite water has to be found particularly for large cities like Karachi. The Sindh government and the farm lords have been objecting to more water being diverted from River Indus to Karachi, thus reducing the water availability for Sindh farms. If more water is taken out of Indus now will the same objection be raised again? That is an issue that needs to be attended. When it comes to providing electricity to all including those in the far off villages we need far more power than what we have at present. Will all the current efforts to increase power, initially through the thermal system be successful by next year and the power supply increase radically? If that does not take place the president’s commitment may not be fulfilled within the time frame suggested.

Mr Shaukat Aziz had earlier said that remote villages would be provided at least a bulb. That certainly is not power for all because that means enough power to run cottage factories as well. In the cities and towns where there is power now the transmission and distribution lines are too old and break down too often. Those lines have to be replaced at a high cost and if that is not done a great deal of power will be wasted and people will feel utterly frustrated.

In addition, theft of power which along with the technical losses is said to be 26 per cent in the Wapda region and 40 per cent in the KESC area should be greatly reduced. That will greatly cut the cost of power production and increase the profitability of the KESC and Wapda. Some of the additional power to be developed has to come through foreign investment and we hope the requisite foreign direct investment becomes available in time.

President Musharraf has now spoken of cheaper gas at a time when we are going to import it from Iran, Turkmenistan and Qatar at a higher cost after heavy investment on the pipelines. We do not have enough gas at present and those seeking additional supply are too many beginning with the fertilizer companies which have a higher priority. So the government may rely on LNG which is to be promoted in a big way in the country. That is not quite the same as receiving gas through the gas pipelines directly.

Fulfilling all the three promises by the president will be a great feat. And people will expect that from the government after 60 years of the birth of Pakistan. And that is what can give real meaning to high economic growth, and not the increased loans from banks and the multiplicity of credit cards and luxury cars provided on an instalment basis.

If clean and safe water offers great many advantages to people, that can be greatly helpful to the government as well. Clean water can save the people from half stomach ailments and other diseases and reduce the public health budget of the government.

The president has also asked the prime minister and the chief ministers at the centenary celebrations of the Pakistan Muslim League in Lahore to make a public pledge with him to do everything possible to bring down poverty and prices and provide jobs to people. This commitment has no time limit but is a broad one which will strain the resources of the government in full. Of course, such problems should not be handled in the manner the sugar crises was handled or mishandled. Ultimately the prediction came true that the federal ministers along with several sugar mills owners will prevail in seeking withdrawal of the inquiry initiated by the National Accountability Bureau. The mill owners with large sugar stocks promised to bring down prices if the inquiry into their conduct was withdrawn. The inquiry was promptly withdrawn but the sugar prices went up and now the sugar mills have been served with a routine show cause notice to tell the government why action should not be taken against them for indulging in profiteering.

Now that sugar mill owners have evaded action against them it is the turn of the cement industry to raise their prices. They have been doing it all the time and did far more recently as they are sure no action will be taken against them.

The response of the government to the sugar crises is to increase the number of utility stores and raise the sugar supply to such stores. But what the utility stores, despite an increase in their number and rise in the quantity of sugar, sell is a drop in the ocean, except in Islamabad. In other places the consumers have to travel a long distance and what they get by buying sugar at lower prices they lose on the higher cost of travel. So the consumers prefer to buy sugar locally and save travel time and fare.

The supply side of the economy needs to be attended well. That is what the new Governor of the State Bank of Pakistan Dr Shamshad Akhtar had also said before she assumed office. The prime minister has been talking time and again of improving the supply and logistic chain and is making positive moves in that direction. He is encouraging foreign companies to enter the wholesale trade in Pakistan. He met the officials of a European firm, Macro, which intends to set up 15 to 20 cash and carry outlets in Pakistan, beginning with one in Karachi and Lahore this year.

Macro would reduce the abuses of the middleman in trade and have direct contact with the farmers and give them a better deal. Mr Shaukat Aziz says that there is only one wholesale market in each city in Pakistan while in other countries there are several such markets in each city . He said the SHV Holding, another European firm, was interested in the wholesale market in Pakistan and would help the farmers to improve the quality of their products as well as promoting packaging and standardization of their agricultural products.

If we can have a number of distributors like Walmart of America which says the customer is the King that can be greatly helpful to people. In the final analysis what matters is what the government delivers and not what it promises. And its officials should not be allowed to practise the usual abuses and achieve what the government wants.

 

[Neo]

Pakistan's economy to remain robust: survey


ISLAMABAD (March 31 2006): Pakistan's economy would remain robust this year with gross domestic production (GDP) growth rate at 6.5 percent, says the Economic and Social Survey of Asia and the Pacific-2006.

However, there are concerns about the overall budgetary deficit in years ahead as it may rise again. Besides, weak buoyancy of tax revenue, unemployment and poverty still remain the big challenges.

The survey launched here on Thursday points out that the economy of the Asian Pacific region grew strongly in 2005, aided by a buoyant global economy and the region should maintain its growth momentum in 2006, barring any unfavourable external events.

For 2006, the survey forecasts that oil prices will fluctuate within the range of $50-55. There are fears, however, that they may touch $100 a barrel within the next four years.

Despite high global energy prices, the price pressures rose only moderately in 2005 and are expected to remain muted or even ease slightly in 2006.

The Unescap has praised Pakistan's impressive economic growth in 2005. The GDP growth of 8.4 percent in 2005 was the highest in the last two decades. The factors which contributed to acceleration were strong domestic demand, better weather conditions for agriculture, continuity of economic policies and a robust financial sector.

The government had set a growth target of 7 percent of GDP for 2006, less than the rapid 8.4 percent achieved in 2005 but higher than the long-term growth trajectory of 6 percent.

A number of factors may interfere however; agriculture, prone to weather-related fluctuations, may perform below expectations. On the other hand, large-scale manufacturing may achieve the target and growth in services is expected to remain strong. Sustaining a higher growth rate is thus possible.

The earthquake is expected to have a minimal impact on economic growth. Natural disasters, damage and destroy assets, however, the repair and rebuilding of these assets generates economic activity that can help growth. Keeping all these factors in view, the surveys indicates that the GDP should grow 6.5 percent or higher in 2006.

There are indications that the economy as a whole is not likely to lose momentum in the short-term as a result of the devastating quake.

There was a sharp increase in nominal investment supported by strong macroeconomic fundamentals, increased availability of credit and a significant rise in foreign direct investment (FDI).

However, the investment to GDP ratio has remained at about 17 percent in the last four years. On the supply side, agriculture performed exceptionally well in 2005, with good weather and supportive government policies contributing to growth rate of 7.5 percent, an increase of 2.2 percent than in 2004.

Large-scale manufacturing recorded an impressive and broad-based growth rate of 15.4 percent in 2005. The service sector grew by 7.9 percent in 2005, in line with the higher growth in the commodity-producing sectors.

Inflationary pressure strengthened considerably in 2005, as inflation rose from 4.6 percent in 2004 to 9.3 percent.

Three years of strong economic growth, complemented by record low interest rates and the ongoing structural shift of many households towards higher consumption have injected new vigour into domestic spending.

This spending, coupled with rising oil and other commodity prices, contributed to a sharp increase in inflation in 2005. Food inflation reached double digits, a heavy burden on the poor who spend most of their income on food.

The government took several measures to ease inflationary pressures by not passing on to consumers the entire increase in the international prices and it began to tighten monetary policy to ease demand pressures.

The inflation is expected to drop to about 8 percent in 2006, pulled down by the decline in aggregated demand implicit in the lower growth estimate, a high base effect for 2006 prices and an anticipated improvement in food supplies.

However, prices of construction materials are expected to increase at a faster pace because of supply bottlenecks associated with the reconstruction work in the wake of the earthquake.

Budget deficit brought down to a relatively low level in recent years may rise again. In fiscal year 2005, it stood at 3.3 percent of the GDP.

Tax revenue buoyancy remained weak, as reflected in the continuing fall in the tax to GDP ratio that limits the government's ability to provide adequate funds for infrastructure and social programmes.

High growth of exports was outpaced by even higher growth of imports and current account turned into deficit. In 2005, while exports grew at a healthy rate of 16.9 percent, imports grew almost twice as fast, at 32.3 percent.

Higher oil prices led to a substantial increase in import payments and to higher shipment charges and so to higher prices for other imports as well. While growing domestic demand boosted import, imports of machinery and raw material also increased substantially.

Coupled with these large remittances, gains from the lower interest payments on Pakistan's external debt and liabilities partially offset the impact of the large trade gap. As a result, the current account deficit was contained in 2005.

The survey points out that there has been a significant increase in net inflows of capital in 2005. Capital inflows included mainly one-off inflows and an increase in concessional long-term loans from the World Bank and the Asian Development Bank. Foreign Direct Investment (FDI) reached $1.5 billion in 2005, 61 percent higher than in 2004. New FDI is so far concentrated in a few sectors such as telecommunications, finance and insurance and oil and gas exploration.

Following the adoption of a robust strategy of debt reduction, Pakistan's external debt declined from $37.9 billion at June-end 2000 to $36.6 billion at March-end 2005.

Highlighting the challenges, the survey says that the government expenditure related to the earthquake is likely to put pressure on the budgetary balance but with the continuing fiscal discipline, prudent monetary policy and focused attention on improving infrastructure and social sector indicators, the economy should maintain its medium-term growth trajectory.

Besides, enhancing the buoyancy of tax revenues, the growth in current expenditure needs to be curtailed and imbalances in the external sectors need to be addressed to ensure that the economy does not deviate from the growth path, achieved in the past few years.

Volatile oil prices: The current bout of high oil prices is hurting countries and if oil prices rise further by $10 a barrel, GDP growth of a developing country such as Pakistan can drop by 0.5 percent, inflation can rise up to one percent and current account deficit can widen up to 0.3 percent of the GDP.

The Challenge of Avian Influenza: The region has suffered significant human and economic losses as a result of the outbreak of H5N1 and estimates of human deaths from a possible global pandemic of the highly pathogenic avian influenza range from five million to 150 million people.

As a conservative loss in GDP from a pandemic would amount to $200 billion in just one quarter and in a worst case-scenario could plunge the global economy into recession.

 

[RAPTOR]

Great interview provided by Aziz and indeed Pakistan is picking up itself rapidly.
Last year we recorded 8.4% economic growth, second highest after China and all the parameters are indicating that the trageted growth of 7% will be met this fiscal year with will end within few monts.
Despite the loss of Oct. 8th and high fuelprices, the economy remained well on track and that should send a signal to foreign investors that Pakistan today is a solid inverstment market whith guarateed returns.

What does it mean in terms of GDP?

Well the GDP currently stands at $110 billion, add $8 billion growth this year and another 8-10 billion next year and we have a platform to take a leap to the next level; becoming a medium income states.

PPP has surpassed $2500 mark and will shortly enter the Top100.

With the addition of Gwadar to the national economy, Pakistan is poised for a take off in the next few years. The tax base should be increased and more jobs need to be created also.

 

[Neo]

With the addition of Gwadar to the national economy, Pakistan is poised for a take off in the next few years. The tax base should be increased and more jobs need to be created also.

Indeed!
Just waiting for the details for the next five year plan, the economic growth shoud be between 8-10%. :thumbsup: