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State of the economy The economy, at last, seems to be turning around. It is indeed no mean achievement to record a growth rate of 6.4 per cent for a country which was put on an annual international 'bail- out' only a couple of years back. Things had actually started looking up from around the end of last fiscal year. A degree of macro-economic stability had been achieved by the end of June, 2003. However, the question of sustainability remains, for we seem to be still far away from the take-off stage. With the macro-economic stability sustaining for at least next five years, the economy needs to grow at an annual average rate of seven to eight per cent to be able to come out of the bog of backwardness. There is a need to sustain both the investment and savings rates at the current 18 and 20 per cent, respectively, for the next five years to achieve the kind of growth rate over the medium term that would propel the economy to reach the take-off stage. At the same time, we must continue to press on with poverty alleviation programmes to ensure distributive justice. Growth without a human face is a sure prescription for social upheavals. The latest Economic Survey claims that the incidence of poverty in the country is coming down. One may have reservations about the methodology as well as the period and the size of the sample used in calculating this, but if one looks at the highly positive economic data of the out-going year holistically, one would find it almost impossible to dispute the claim. However, there certainly is a lot of room to dispute the figure of 4.2 per cent by which poverty is claimed to have declined. With the rate of unemployment growing at 8.27 per cent against a little over seven per cent last year and the very poor showing of the agricultural sector which grew at a paltry rate of 2.6 per cent, it is hardly likely that poverty could have declined by such a significant percentage. However, one must take comfort in the fact that the population growth has gone down to under two per cent while the rate of literacy has gone up to over 50 per cent. The gain in one social sector is more than overshadowed by regression in another. The manufacturing sector, which seems to have singlehandedly taken the GDP growth rate even beyond the target fixed for the year, has itself recorded a growth rate of over 13 per cent - helped principally by the automobile (52.7 per cent), electrical (45.8 per cent) and leather (39 per cent) sub-sectors. Clearly, the easy earnings of those who were playing the stock market and the surpluses that accrued to the recipients of home remittances which had gone up steeply in the wake of 9/11 and driven also by the availability of funds from the banking sector even in the form of consumer credit, a kind of heightened consumerism seems to have taken hold of the upper and upper-middle classes. This explains the sudden and steep increase in the demand for automobiles, luxuries and house construction. Together with a steep hike in export demand during the year, this seems to have led to a fuller utilization of existing capacities and also to balancing, modernization and replacements in the manufacturing sector. This is perhaps the reason why with so much activity going on in the manufacturing sector, the private sector investment rate could not go beyond 11.7 per cent against last year's 11.2 per cent and that the unemployment rate kept going up during the year. In fact, it was the public sector investment which went up by one percentage point from 3.6 to 4.6 and took along with it the overall rate of investment to over 18 per cent against last year's 16 per cent. Even on the foreign investment front, what came in during the year was mostly the proceeds of privatization rather than investment for creating new domestic assets. These two aspects - the rates of domestic private investment and foreign direct investment - have to be kept under close scrutiny over the next 12 months to see how they behave. There is a limit to how much one can do on BMR or on the privatization front. As the situation indicates, we have almost reached these limits in the out-going year. So, in order to sustain the growth rate in GDP and in the manufacturing sector in particular, new investment needs to be attracted for creating new domestic assets. This is also necessary to keep the growth rates in exports and revenue collection sustained at the current levels. Very soon our import needs are likely to go up significantly, which would then make the current foreign exchange reserves of $12 billion inadequate. Export earnings need to increase to keep up with the increasing import bill as well, and for that diversification is needed both in exportable products and their destinations. Here it would not out of place to reiterate the need for the government to keep expanding at least at the current rate the public sector development spending as the private sector seems to be still taking its time to play its role as an engine of growth in right earnest. Meanwhile, one hopes that the incentives and concessions offered to the agriculture sector in the package announced by the government on Thursday would induce the affluent section of the farming community to invest in this sector so that its contribution in the overall economic growth increases to at least five to six per cent over the medium term. A growth rate of six per cent is not something new for Pakistan. We have seen it during the 1960s and then in the decade of eighties as well. In both these periods, as today, the country was awash with foreign assistance. But then at the end of both these periods the country had faced massive socio-economic dislocation. The gap between the rich and the poor grew at the end of the 1960s. By the late-'80s, the country experienced a spurt in weapons, corruption and drugs. The rich had become richer and the poor poorer. The end of both these decades had come with the end of military rule in Pakistan. At the same time, the country was also seen becoming almost a pariah state from being the most 'allied ally' of the US at one time. It would be in the fitness of things if the government kept this history in mind while managing its economy under circumstances not very dissimilar to those in the 1960s and 1980s. According to the Survey, the government has re-based the national accounts from 1980-81 to 1999-2000. One can hardly disagree with the official economic managers that there was an urgent need for doing this because many of the factors and variables used in the accounting had become obsolete and many new factors had arisen to claim attention. However, it is not very clear if this exercise had affected the economic performance during the out-going year and if so, to what extent. Please Visit our Sponsor (Ads open in separate window)
