ISLAMABAD, Jan 7: Despite the government’s best efforts and the successful implementation of the IMF’s Standby Arrangement (SBA), investors’ confidence has still not been restored, says the local chief of the Asian Development Bank.

“The investment rate has plummeted to the lowest level since the 1950s. The falling investment rate has adversely impacted the economic growth rate, which averaged 3.5 per cent over the last three years. As a result, given Pakistan’s high population growth rate (2.2 per cent), real per capita income declined from $473 in 1998 to $429 in 2001 because of the sharp depreciation in the Pakistan rupee,” he maintained.

Speaking at the National Defence College here on Monday, Country Director of ADB, Mr M. Ali Shah, said that economic growth in FY2001 is estimated at 2.6 per cent compared to 3.9 per cent in FY2000. The deceleration of the growth rate was primarily due to the drought-induced reduction in the agriculture sector’s output, which posted a negative growth rate of 2.5 per cent, as well as a reduction in hydroelectric power generation.

Talking about population, employment and poverty, he pointed out that falling growth rates, accompanied by rising income inequality and increasing unemployment, had resulted in increasing poverty during the 1990s. Whereas the proportion of the poor estimated in various studies showed variation: in 1998-99 roughly one-third of the population was below the poverty line, based on a minimum consumption requirement of 2,550 calories per adult. The number of people living below the poverty line in terms of a minimum income of $1-a-day was 31 per cent in 1996. “In terms of $2-a-day poverty line, the proportion of the poor in 1996 was 84.7 per cent. Since 1998-99, economic growth has slowed further, the fiscal squeeze has intensified, development spending has declined, and the country has experienced a severe drought. Therefore, the incidence of poverty in Pakistan today is likely to be significantly higher than it was in 1998-99.”

Investment and savings rates in Pakistan have always been low, but they have now fallen to the lowest levels since the early 1950s. An important factor responsible for the continuous fall in the investment rate since FY1993 has been the growing debt burden and the associated debt servicing requirements. This has forced the government to curtail the public sector development programme, and public investment has declined from 9.1 per cent of GDP in FY1993 to 5.6 per cent in FY2001. During this period, private sector investment also declined from 10.1 per cent of GDP to 7.5 per cent, he said. “Two factors that contributed to this decline in private investment was crowding out of private sector credit because of the borrowing requirements of the government associated with the high fiscal deficit, and the complementary relationship between public and private investment,” he added.