A review of the economy just before the budget time is a good exercise because it allows economists to forecast what is in the offing.

Presently, there is no difficulty for the finance minister to present an all-time ‘no burden’ budget. Shaukat Aziz has already indicated that there aren’t going to be any new taxes imposed. Thus the expected scenario is that of relief all the way.

Pakistan’s economy has faced many challenges both due to factors inside and outside the country. In recent years, after the nuclear tests, the US imposed economic embargo. The changing political scenario in Pakistan due to 9-11, and its repercussions and the US-led incursion in Afghanistan, and most recently, the US-led invasion of Iraq have had an impact on the economy. This has not been a steady or peaceful period for the Pakistan economy to meet all the challenges and perform according to estimated or expected targets. But what must be appreciated in no less a term than a miracle is that against so many odds, the economy, in the last three to four years has performed better than some of the projections. The credit for the turnaround in economic performance must go to the economic managers of the country and for the guidance, political stability, and economic policy continuity to President Pervez Musharraf.

The seven macro indicators of economic performance i.e. exports and imports, foreign exchange reserves, balance of payments, strength of the rupee (dollar parity), performance of local bourses, the rate of inflation and influx of foreign direct investments when looked at constructively tells us that economy is moving in the right direction. A careful analysis of some of the present indicators and looking at all seven counts as stated above, the result shows that some with more than expected and some within the expected limits, the economy has moved into take-off position.

The gross domestic product (GDP) growth rate remained for the last 5/6 years at an average 3.5 per cent; the new target for the year 2002/03 was set at 4.5 and later was revised to 4.4 per cent, but in fact the latest projections indicate that this may end up at 4.5 plus. A healthy sign.

The Asian Development Bank’s (ADB) representative, in a press conference indicated that the signs are that Pakistan is moving ahead to produce a real GDP growth rate to cross 4.5 per cent. He projected the same to touch 5 and 6 per cent in the next two years.

The most important sector in Pakistan’s economy is the agriculture sector. Comparing the growth rate with the last two years - from -2.5 (negative) in 2000/01 to 1.4 in 2001/02 and now expected to exceed 2.6 for FY03 is, under the circumstances, definitely something to be proud of.

Another latest release of exports figures show an increase of 20.83 per cent to $8.85 billion over the last year, for the same period, $7.32 billion. This has been achieved in the first ten months of the current fiscal year - July 2002 to April 2003. The SBP Third Quarterly Report takes the projection to cross $10.4 billion target set for FY03. Major textile exports show improvement all round. Imports witnessed an 18.7 per cent rise over the corresponding period last year (FY01/02). The healthy sign is that this includes mainly machinery and spare parts and industrial raw materials.

Foreign exchange reserves have reached all time high nearing $10.5 billions. This alone is an indication that the economy is performing well - foreign donors and lenders, and foreign investors can gain confidence from these figures. This qualifies for imports and safe return of dividends and profits to foreign shareholders. Based on the economic indicators and strong reserves position, Standard and Poor’s raised Pakistan’s sovereign long-term, foreign currency rating to single B from previously rated B-(minus). Also, Moody’s have shown the same confidence in Pakistan’s economy by raising long-term FCY sovereign debt to “positive” from “stable.”

The rate of inflation, consumer price index (CPI), has remained steady at 3.6 per cent up to third quarter compared to 3.3 in FY02. This means that prices have remained at a level comparable to last year not burdening the people to any great extent.

The most significant factor (helping foreign exchange reserves) is the home remittances, which have gone above all estimate reaching above $3 billion raising expectation that in the next budget the target may be estimated around $4 billion.

The capital market has crossed the psychological barrier taking the index to much above 3000. For the last one month the index was holding just below that level - shy of crossing the barrier. This is a reflection of sentiments on the economic front and expectations of the budget.

The budget FY0003/04 is expected on June 07. There will be no surprises. There is expected to be a number of relief packages on various tax slabs and some concessions. The most important sector to benefit is going to be the small and medium enterprises (SMEs), the vibrant sector for which funds have been made available and more are expected. In the agriculture sector some relief on utility cost has already been given, but again more is expected.

The privatization programme will get new momentum and policy environment must be improved. More work is needed to create a conducive climate for local and foreign investors and bringing in FDIs. Poverty alleviation programmes need to be speeded up and ‘job creation’ efforts to be boosted up. All in all, a much better economic position is going to emerge at the announcement of the new budget FY03/04.