EDITORIAL (May 15 2006): At a two-day meeting of the Pakistan Development Forum (PDF), previously known as Aid-to-Pakistan Consortium, the representatives of government of Pakistan and other participants emphasised their views almost in a way as if they were talking about two different economies.
While Prime Minister Shaukat Aziz and his advisor, Salman Shah, commended the performance of the economy in a highly positive tone, the representatives from international organisations and private sector expressed serious reservations about some of the recent developments.
All social and economic indicators of Pakistan, according to the Prime Minister, were showing positive trends. The country would sustain acceleration in growth within a band of 6 to 8 percent over the next 5 to 10 years despite so many challenges likely to be confronted.
Poverty had declined from 32.1 percent to 25.4 percent and per capita income was expected to reach 800 dollars by the end of June this year. Gross primary enrolment had increased to 86 percent, immunisation of children had gone up to 83 percent, water supply had been assured to 39 percent of the population and Pakistan was fast emerging as a good choice for investors.
The country, the Prime Minister asserted, "is all set to become" a regional economic hub with a specific role as trade and energy corridor for China and Central Asian countries.
He listed reforms, continuity in policies, opening up of different avenues to the private sector and locational advantage as the driving forces of the economy. Salman Shah said that Pakistan had truly laid the foundation for a robust and vibrant market economy.
Major achievements included a strong recovery supported by a robust performance in industry, agriculture and services, extraordinary strengthening of domestic demand, reduction in fiscal deficit, a high double-digit growth in exports and imports, increased workers' remittances, stability in the public and external debt burden, accelerated privatisation programme, capital market strengthening and improved social and human development indicators.
Non-government participants were quite blunt in their criticism of some aspects of the economic performance though they did not directly argue against the statements from the government side.
According to Praful Patel, World Bank's Vice President for South Asia, Pakistan had a history of "boom-bust cycles" and "now is the time to sharpen the watch on macro-economic situation". Pakistan's economy had started showing signs of 'overheating' as imports were swelling at a faster rate than exports. The root causes of growing external imbalances needed to be addressed through co-ordinating monetary and fiscal policy reforms to avoid "pain and disruption of a hard landing".
An inequitable distribution of assets was depriving the common people of due share of the benefits of growth. Patel added that despite seven years of trade, regulatory and banking reforms, the cost of doing business in Pakistan was still too high. Ahmad Mohammad Ali, President of Islamic Development Bank, said that unless the fruits of growth produced a credible impact on the lives of common people, ground realities would not change.
Another challenge was how to mobilise domestic savings for investment, notwithstanding the importance of international resources. Ahmad Ali also urged the government to provide alternatives to encourage more of its migrant workers to channel their remittances into infrastructure and other development projects. The European Union delegate advised the government to pay more attention to growing inequality as economic growth alone could not reduce poverty. He also sought repeal of 'discriminatory' stipulations of the Hudood Ordinance, blasphemy law and Qisas and Diyat laws.
According to the ILO Director, unemployment of the educated class had increased in the past few years. Private sector representatives expressed worries about rising trade deficit, lack of trained workforce, low educational standards, looming energy shortage and higher cost of doing business that together hampered Pakistan's ability to compete in the international market.
The observations of various delegates at the Forum, in our view, mirrored a classic approach of presenting social and economic developments in a partisan way.
Government officials, including the Prime Minister, painted a perfectly rosy picture of the economy and spoke about its bright prospects in a very eloquent manner while more objective analysts generally pointed to the emerging weaknesses of the economy that would frustrate the government's efforts to improve the overall situation in the country in the coming years. Seen closely, both the viewpoints may not be very much wide off the mark but merely show the degree of difference in emphasis placed on various economic parameters. The government, in our view, should be more serious, however, about addressing the shortcomings pointed out frequently by various experts, within and outside the country.
Government representatives are probably right when they assert that the worst is over. It was not long ago that per capita income was almost stagnant due to very low growth rate, the country had almost lost its financial sovereignty and international rating agencies had downgraded it to a selective default level. Pakistan has surely crossed the bridge from stage when the economy was fragile, the balance of payments vulnerable, the debt situation had worsened and foreign exchange reserves were not sufficient even for a few weeks of imports.
A turnaround in some of the major aggregates does not, however, mean that the economy would henceforth always show a healthy trend and the weaknesses are a thing of the past. There is obviously no paradise on this earth and Pakistan cannot always remain immune to the shocks.
Most of the downside risks pointed out by the participants are real and need to be addressed properly and effectively before matters get out of hand. Certainly, the economy is showing signs of overheating as reflected in the external trade profile of the country, bank borrowings by the private sector and a high inflation rate. Inequitable distribution of assets is accentuating disparities in income and standard of living.
The most formidable challenge as pointed out by Dr Ali is the huge gap between domestic savings and investment, which sooner rather than later could act as a brake to our development effort. Unfortunately, the government is putting all the emphasis on foreign investment to sustain the development process, which is not the way for a self-reliant and stable growth. Large-scale unemployment of educated people in the urban areas, endemic poverty and increasing disparities in incomes lead to a deadly combination.
The Prime Minister has said that poverty has declined by 6.7 percent. This would be very welcome news if only backed by ground realities at the grass roots level and supported by proper statistics that are beyond any doubt. We know that PDF is organised every year before the budget to seek assistance from the donors, it would therefore be fit and proper if the concerns of the donors as expressed forcefully and clearly this time by them are also given due attention in the overall policy formulation of the government to the promote long-term economic agenda of the country.
While Prime Minister Shaukat Aziz and his advisor, Salman Shah, commended the performance of the economy in a highly positive tone, the representatives from international organisations and private sector expressed serious reservations about some of the recent developments.
All social and economic indicators of Pakistan, according to the Prime Minister, were showing positive trends. The country would sustain acceleration in growth within a band of 6 to 8 percent over the next 5 to 10 years despite so many challenges likely to be confronted.
Poverty had declined from 32.1 percent to 25.4 percent and per capita income was expected to reach 800 dollars by the end of June this year. Gross primary enrolment had increased to 86 percent, immunisation of children had gone up to 83 percent, water supply had been assured to 39 percent of the population and Pakistan was fast emerging as a good choice for investors.
The country, the Prime Minister asserted, "is all set to become" a regional economic hub with a specific role as trade and energy corridor for China and Central Asian countries.
He listed reforms, continuity in policies, opening up of different avenues to the private sector and locational advantage as the driving forces of the economy. Salman Shah said that Pakistan had truly laid the foundation for a robust and vibrant market economy.
Major achievements included a strong recovery supported by a robust performance in industry, agriculture and services, extraordinary strengthening of domestic demand, reduction in fiscal deficit, a high double-digit growth in exports and imports, increased workers' remittances, stability in the public and external debt burden, accelerated privatisation programme, capital market strengthening and improved social and human development indicators.
Non-government participants were quite blunt in their criticism of some aspects of the economic performance though they did not directly argue against the statements from the government side.
According to Praful Patel, World Bank's Vice President for South Asia, Pakistan had a history of "boom-bust cycles" and "now is the time to sharpen the watch on macro-economic situation". Pakistan's economy had started showing signs of 'overheating' as imports were swelling at a faster rate than exports. The root causes of growing external imbalances needed to be addressed through co-ordinating monetary and fiscal policy reforms to avoid "pain and disruption of a hard landing".
An inequitable distribution of assets was depriving the common people of due share of the benefits of growth. Patel added that despite seven years of trade, regulatory and banking reforms, the cost of doing business in Pakistan was still too high. Ahmad Mohammad Ali, President of Islamic Development Bank, said that unless the fruits of growth produced a credible impact on the lives of common people, ground realities would not change.
Another challenge was how to mobilise domestic savings for investment, notwithstanding the importance of international resources. Ahmad Ali also urged the government to provide alternatives to encourage more of its migrant workers to channel their remittances into infrastructure and other development projects. The European Union delegate advised the government to pay more attention to growing inequality as economic growth alone could not reduce poverty. He also sought repeal of 'discriminatory' stipulations of the Hudood Ordinance, blasphemy law and Qisas and Diyat laws.
According to the ILO Director, unemployment of the educated class had increased in the past few years. Private sector representatives expressed worries about rising trade deficit, lack of trained workforce, low educational standards, looming energy shortage and higher cost of doing business that together hampered Pakistan's ability to compete in the international market.
The observations of various delegates at the Forum, in our view, mirrored a classic approach of presenting social and economic developments in a partisan way.
Government officials, including the Prime Minister, painted a perfectly rosy picture of the economy and spoke about its bright prospects in a very eloquent manner while more objective analysts generally pointed to the emerging weaknesses of the economy that would frustrate the government's efforts to improve the overall situation in the country in the coming years. Seen closely, both the viewpoints may not be very much wide off the mark but merely show the degree of difference in emphasis placed on various economic parameters. The government, in our view, should be more serious, however, about addressing the shortcomings pointed out frequently by various experts, within and outside the country.
Government representatives are probably right when they assert that the worst is over. It was not long ago that per capita income was almost stagnant due to very low growth rate, the country had almost lost its financial sovereignty and international rating agencies had downgraded it to a selective default level. Pakistan has surely crossed the bridge from stage when the economy was fragile, the balance of payments vulnerable, the debt situation had worsened and foreign exchange reserves were not sufficient even for a few weeks of imports.
A turnaround in some of the major aggregates does not, however, mean that the economy would henceforth always show a healthy trend and the weaknesses are a thing of the past. There is obviously no paradise on this earth and Pakistan cannot always remain immune to the shocks.
Most of the downside risks pointed out by the participants are real and need to be addressed properly and effectively before matters get out of hand. Certainly, the economy is showing signs of overheating as reflected in the external trade profile of the country, bank borrowings by the private sector and a high inflation rate. Inequitable distribution of assets is accentuating disparities in income and standard of living.
The most formidable challenge as pointed out by Dr Ali is the huge gap between domestic savings and investment, which sooner rather than later could act as a brake to our development effort. Unfortunately, the government is putting all the emphasis on foreign investment to sustain the development process, which is not the way for a self-reliant and stable growth. Large-scale unemployment of educated people in the urban areas, endemic poverty and increasing disparities in incomes lead to a deadly combination.
The Prime Minister has said that poverty has declined by 6.7 percent. This would be very welcome news if only backed by ground realities at the grass roots level and supported by proper statistics that are beyond any doubt. We know that PDF is organised every year before the budget to seek assistance from the donors, it would therefore be fit and proper if the concerns of the donors as expressed forcefully and clearly this time by them are also given due attention in the overall policy formulation of the government to the promote long-term economic agenda of the country.
