KARACHI, Feb 8: Pakistan's economy faces serious risks and challenges and desperately needs basic infrastructural changes. During the last two and a half financial years, many economic indicators are showing negative trends. The current account and trade deficits numbers are too high and the national exchequer is suffering a loss of Rs725 billion per month due to corruption, tax evasion, exorbitant expenditures and poor performance of public sector enterprises.

This was stated by Dr Shahid Hasan Siddiqui, a renowned economist and chairman of the Research Institute of Islamic Banking and Finance. He was speaking at a seminar on “Where is Pakistan's economy heading” which was organised by the Department of International Relations, University of Karachi on Wednesday.

Expressing concern over the economic scenario, Dr Saddiqui said that it was important to note that the situation today was far worse as compared to the state of affairs in 1999 when Pakistan was penalised with sanctions for going nuclear.

Giving a comparison between the 1999 and 2006 situations, he said inflation rate was 5.7 per cent in June 1999 and was over eight per cent in 2006; unemployment rate was 5.8 per cent in 1999 and 6.5 per cent last year; trade deficit was $1.5 billion in 1999 and $12 billion last year; the current account deficit was $1.8 billion in 1999 and over $5.2 billion last year. During the same period, the health expenditure as percentage of GNP had also gone down despite the fiscal space provided by 9/11.

The educational expenditure had not shown any improvement.

Banks had reduced their rate of returns from 6.5 per cent in 1999 to 2.5 per cent. That means they had enhanced their profitability tremendously, but were paying very less to the depositors. From 2000 to till to date, Rs450 billion had been paid less to the depositors, he said.

To improve the economy, he said, the policy of consumption led growth should be changed to production led growth. Consumer finance schemes should be banned and banks be directed to offer a minimum return of one per cent over the inflation rate to the saving bank account holder.

For the time being unless the tax GDP ratio was raised to 15 per cent in the shortest possible time, which would mean an increase of about Rs350 billion in the next financial year, the government can neither bridge the current deficit nor can provide development expenditures for education and health.

Dr. Siddiqui also criticised the government for selling profitable units to foreigners and maintained this could result in what he called re-colonisation. The government, he said, had violated law by using the money from the sale proceeds to meet the budge deficit, a product of corruption and tax evasion.

Referring to the initiatives for poverty alleviation, he said that it was ironic that in Pakistan Rs150 billion were given every year in charity, but that money was wasted in a sense that nobody came out of poverty.

There are reports that from the Zakat deducted by the government, about Rs6 billion are being used by senators to perform Umra every year.