KARACHI, Sept. 9: Much before the first quarter (July-September) of the current fiscal year (05-06) comes to close, all the economic growth targets, set in June last by the government have been literally knocked off telling us loudly of the world of fantasy in which Pakistan’s planners live.
Within less than three months of the presentation of the 05-06 budget Pakistan’s donors and economic analysts are now giving a hard look at the economic growth targets set by the planners.
On Thursday, the Asian Development Bank (ADB) in its update assessment of the economy, forecast Pakistan’s economic growth at 6.5 per cent in the current fiscal year as against 7.5 per cent projected by our planners. Inflation was set to be contained to 8 per cent but is said to have touched 9 per cent in July. The recent ADB report predicts 8.5 per cent inflation. It blames rising international oil prices, expansionary fiscal policy and monetary overhang to be the main contributing factors.
Only a year ago, the planners prepared a mid-term perspective plan which set inflation at 5 per cent for next three years — 04-05, 05-06 and 06-07. In the very first year of the operation of this plan, the inflation, because of the rising international oil prices, impact of monetary overhang and the expansionary fiscal policies, touched a near-double digit. As an after-thought, the planners projected inflation to remain at an average of 8 per cent for next three years in a revised mid-term perspective plan. But in less than three months, this assessment is being reviewed and revised.
Another worrying factor is the trade deficit and the resultant current account gap. The planners want to maintain trade deficit in 05-06 at $4.16 billion level and that of current account at $2.70 billion. But the trade deficit in 04-05 has exceeded $6 billion.
In the current fiscal year, export target of $16 billion looks hard to be achieved despite all the budgetary incentives and expansion in production capacities because of the telling effect of rising inflation. Import bill may exceed the projections by leaps and bounds to touch $26 to $28 billion figure because of the reduction of tariff in more than 1,300 items, allowing a virtual free import of pulses, sugar, cement, cars and a host of consumer items and the rising oil prices.
Oil demand in Pakistan has increased substantially in last five or six years because of the purchase of cars and motorcycles. Oil import bill in 04-05 increased by almost 21 per cent to about $4 billion and in all likelihood is set to touch to $5.5 billion during the current fiscal year. The Economic Survey tells us that transport sector is the biggest consumer of POL products at 48.7 per cent followed by power sector 31.1 per cent, industry 12.1 per cent, household 3.8 per cent, government 2.5 per cent and agriculture 1.8 per cent.
Thanks to the government’s policies, the number of motor cars running on Pakistan’s roads is more than 1.3 million today as against 815,000 about six years ago. Pakistan spent almost one billion dollars on car import in 04-05 and with mounting pressure from the EU and rising demand from the local neo-rich elite class, the import of cars this year will demand more than two billion dollars.
The State Bank Governor Dr Ishrat Hussain in a recent meet ing with the Karachi Chamber of Commerce and Industry dropped broad hints of tightening the monetary policy and tackling the inflationary pressures with T-bills discount rates to impact interest rates of the banks.
The emerging inflationary threat on the economic scene has the potential to impact industrial production and the exports competitiveness and in fact can upset the entire economic development plan.
Poverty, unemployment and inflation are the issues where the government finds itself helpless and resorts to hollow claims even at the highest level by President Musharraf who informed or misinformed members of Lahore Chamber of Commerce and Industry of a reduction in poverty ratios two years ago. He literally ridiculed a journalist of a television channel who questioned government figures of employment. Prime Minister Shaukat Aziz too in his press conference immediately after budget presentation on June claimed of reversing poverty growth trends.
The World Bank and the IMF have in their recent assessments expressed concern over Pakistan’s poverty situation. Pakistan still ranks 135th on the world development map. The recently concluded Pakistan Social and Living Standard Measurement survey that covered more than 76,000 households revealed that more than 51.5 per cent that is to say as many as 41,000 household did not see any change in their economic condition in last one year.
Even now when all projections and targets of the government are proving illusions there is hardly any hope of change in policy direction. There will be some window dressing here and there, new projections will be made and new target set with new explanations.
The government’s fiscal and monetary policies have further empowered the rich and privileged. The businessmen cartels in Pakistan were never as powerful as they are now. We now see hardly half a dozen automobile assemblers controlling Pakistan’s market, half a dozen stock brokers virtually robbing hundreds if not thousand of investors in stock exchange and they still have managed to get a substitute of ‘badla’ in form of bank financing.
The cement manufactures refuse to bring down prices. Easy bank money at cheap rates has strengthened the speculators to buy, import and hoard all commodities. The bank money is now being used in privatization as the PTCL buyer will get almost two-third of his $2.4 billion from a consortium of Pakistan banks. Depositors are not given even a fraction of inflationary rate as return on their savings. Pakistan was an elitist state before Musharraf took over in 1999 and Shaukat Aziz was appointed finance minister and Dr Ishrat Hussain made Governor of the State Bank. Six years later the country is more elitist than ever before.
