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The bubble that burst

Published Apr 02, 2013 05:15am


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GEN Pervez Musharraf has returned to the country. This time, mercifully, his return has not been heralded by a posse of armed soldiers clambering over a gate to pave the way for a power grab.

The retired general plans to run for a seat in parliament and claims he will restore Pakistan to where he left off. Thus an assessment as to what his regime achieved during his eight-year rule is in order.

The general’s principal claim to fame is the economy, which his imported prime minister managed. The high point is claimed as the GDP growth rate, which was raised from a pre-2000 average of below four per cent to a post-9/11 average of six per cent. A stellar performance was the 7.5 per cent growth in 2003-04 and nine per cent in 2004-05.

This feat was achieved on the strength of the finance, manufacturing and services sectors. Manufacturing growth averaged nine per cent during this period and registered a record 14 per cent in 2003-04 and 15.5 per cent in 2004-05. Growth in the services sector was over six per cent compared to below four per cent in the pre-2000 years.

It is, however, pertinent to examine how this deed was accomplished. Before any analysis is presented, it is necessary to note that the GDP growth rate is a weighted average of the various sectors of the economy; the manufacturing sector growth rate is a weighted average of the various industries and the services sector growth rate is a weighted average of the various services sectors. The key to understanding the remarkable performance lies in the services sector and in the banking sector, in particular.

The regime’s economic managers set about creating a macroeconomic environment that heavily favoured the banking sector, 80 per cent of which was sold to foreign interests during the regime’s tenure. The principal benefits to the banks accrued from the opening of the large window of consumer credit; with the result that the financial sector value added growth for 2004-05 and 2005-06 was at an all-time high at a record 31 per cent and 42 per cent, respectively.

Two industries that benefited the most from the liberal expansion of consumer financing were automobiles and electrical goods, with credit-financed sales of automobiles, television sets, etc, skyrocketing. Average value addition growth over 2003-2005 in the automobile and electrical goods industries was 43 per cent and 45 per cent, respectively, compared to 14 per cent for the manufacturing sector as a whole.

Thus, it was the extraordinary credit-financed growth in banking, automobiles and electrical goods sectors that provided the narrow base for overall GDP growth. The rest of the economy, particularly agriculture, stagnated.

However, the credit-finance bubble began to burst by 2007. When the doubling of inflation from four per cent over 2000-04 to nine per cent over 2005-08 forced a rise in interest rates, consumer credit disbursements declined by half, slowing financial sector growth to less than 15 per cent. With reduced consumer credit, production of automobiles and electrical goods dropped and with output of television sets falling by one-third GDP growth was back to below four per cent. What was trumpeted as extraordinary growth was actually a mirage, a hot-air balloon that burst at the first whiff of crisis.

High performance figures were also managed by what was apparently the manipulation of data. Post-1998 population census, the population growth rate was estimated at 2.5 per cent, based on the 1981-1998 inter-census growth. However, the population growth rate was arbitrarily reduced to two per cent in 2004, to 1.9 per cent in 2005 and to 1.8 per cent in 2007.

Given that no census had been carried out after 1998, there was no basis for concluding that the population growth rate had declined. The motive for depressing population growth figures emanated from the desire to show enhanced per capita income, i.e. average national income.

An average is derived by dividing the numerator by the denominator and a lower denominator raises the average. Per capita income is a product of national income divided by population. By lowering population estimates by the stroke of a pen, the Musharraf regime managed to contrive an increase in per capita income for the corresponding years.

Another apparent case of data manipulation is that of tax collection.

Budgetary data for customs duty receipts is provided for 13 categories of goods, ranging from chemicals, iron and steel, and machinery to rubber and plastic products and medical and photographic equipment. Clearly, one would not expect customs duty collection in any one year for different import categories to increase by the same percentage.

Ironically, however, that is exactly what happened. Customs duty collection for 10 out of 13 categories of imports is reported to have grown at a uniform 3.1 per cent during 2002-03, at 9.7 per cent during 2003-04 and at 27 per cent during 2004-05.

One hopes Gen Musharraf does not have a similar kind of contrived economic miracle in mind when he talks of restoring Pakistan’s economy to what it was during his days. Pakistan does not need more rounds of governance by gimmickry.

The writer is an economist.


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The views expressed by this writer and commenters below do not necessarily reflect the views and policies of the Dawn Media Group.

Comments (26) Closed

Kamal Gupta Apr 02, 2013 03:43am
If that is true, it is an eye opener, and a shocking one at that. Auto industry can have a multiplier effect on the manufacturing sector (as in India) if components & parts manufacture also take place locally. That has spin off effects on engineering & design skills, and creates demand for steel, polymers, glass, tyres etc. I do not know how much backward integrated the industry is in Pakistan. If it is not, this kind of demand only causes forex to flow out of the country.
Sohrab Apr 02, 2013 03:56am
I wonder why such articles are not published when these generals are in power. We are so quick to point fingers at every slip of our politicians. There is a clear bias against the political process in this blighted country, whether it be the judges, TV anchors, journalists or simply the people on the street and this article highlights this phenomenon of the Pakistani psyche. I am afraid sir your article is too little, too late.
Fida Sayani Apr 02, 2013 06:00am
General should be tried for the mismanagement of the economy, if Mr. Bengali is to be believed.
Munib Apr 02, 2013 06:19am
The writer is an economist yet has no idea of economic understanding of booms and recessions that follow them. Having said that I would like to see the "real" economic growth figures as calculated by the estimates of Mr. Bengali.
ijaz Apr 02, 2013 06:24am
Wish you had also talked about Foreign Reserves, investment in the real state, education reform like HEC and increase in universities, increase in number of PHDs, amount of scholarships for higher studies (you must also mention what your fav democratic looters tried doing it with HEC), Gawadar Port, IT industry, FDI, increase in literacy and decrease in poverty level, record hike in stock market and above all for whatever you are getting paid for i.e. media decentralisation! Whatever you may say but everyone knows that era was one of the best times Pakistan has ever had. Apology but never expected such a biased and misleading writeup by DAWN.
Krishna Apr 02, 2013 06:29am
Nice analysis.. But I guess these kind of analyses can only be done by professionals like Mr. Kaiser Bengali who himself is an economist..But the question is whether this message would reach the masses and common man who would get carried away by the false claims of Musharaff...
I. Ahmed Apr 02, 2013 06:59am
If Musharaf?s government manipulated the data and used wrong averages, so did author in this article by including 2008, the worst year for inflation (20.3%) in the averages. Let?s say Musharaf?s government was bad, what did the subsequent democratic government did to revive the economy? I would like to ask the learned writer to also give his opinion on last five year?s performance of the democratic government. Secondly, one would always compare one government with the other. Would the learned writer agree that till 2005-06 the economic and social condition in Pakistan was better than what it was during previous government?s of Benazir and Nawaz? Thirdly, for the kind knowledge of author, lending and employment are considered a critical element in the growth of the economy. Look what US government is trying to do to restart the housing market. It seems the article was written just to discredit Musharaf. Well you don?t have to use the newspaper space to do that, I am certain Musharaf in a free and fair election will not get a single seat in Pakistan.
aviratam Apr 02, 2013 07:21am
Excellent analysis. Reminds me of India's "growth" story in the 1980s which was based on heavy borrowings. India had to turn to the IMF and sell gold to come out of the hole it had created for itself. The reforms of 1991, however, unleashed a liberalization process so that India could end IMF conditionality in two years.
krishnan Apr 02, 2013 07:47am
Yes General sahib is a good manipulator.Remember Kargil? After blaming militants etc now he is claiming credit for the fiasco( which he projects as a great victory -just as the Army Projected the 1965 or 1971 wars)
salman Apr 02, 2013 02:00pm
Yet the Forex increased multiple folds during Musharaf's time!!
zafar Apr 02, 2013 02:03pm
Thats what everyone in the world including the US does or did. No surprises there.
pathanoo Apr 02, 2013 02:51pm
One - Musharraf is not going any where with his dream of leading Pakistan through the ballot. He will be lucky to be elected to parliament. Two - unless miracle happens, I don't expect any of his cohorts are going to be elected. And, he won't amount to any thing. Three - He will be disillusioned soon. Fourth - It is a fifty-fifty chance that he will leave on his own or the Taliban will get him. In any case, Musharraf is history. No sense wasting articles on him.
Tayyub Apr 02, 2013 05:50pm
He is only Mushraf who introduce in world, we are nation, we compete every Country of the world. But here is No Rewaad, who want make a progress in every field of life, Salam Mushraf
khalidmurad1 Apr 02, 2013 07:01pm
They are all after defaming the only person who has a recorded past performance under the most dipleted conditions, which "Mulk Bachao" and "Confiscation of Dollar Account" of Sharifa Brothers had left. Instead of appreciating the sincerity of Musharraf, who called the World renouned experts like Shaukat Aziz (World No. 5 in Finance) to set country's economy. Mr. Shaukat Aziz filled with spirit of patriotism came with all his international clientage and factually played wonders. We with fraud degree couldn't even appreciate his performance, instead we called him imported Prime Minister and as usual blamed him for cheating and making money and bla...bla. Disgusted Mr. Shaukat joined back World Bank, where he is being paid his normal pay amounting to millions per month by his Jews employers. This is what is exactly happening to many of our other qualified people, who have been imported by their foriegn employers and being heavily paid. These fraud gangsters turned politicians called Adnan Khawaja and Bilor type people to plunder national assets. Yes if people like krishnan accuse Musharraf it is understood, how Musharraf had booted the Indian TV anchor, but if Bengali accuses him then I will call it mental cohesion or paid trade.
syedsarosh Apr 02, 2013 08:18pm
well quoted
NASAH (USA) Apr 03, 2013 04:07am
I am sure this is another Kargilian misadventure this time in the slippery mountains of democracy by Musharraf sahib -- and just as before Musharraf sb will refuse to acknowledge his road kills as his own - once again..
meekal ahmed Apr 03, 2013 05:09am
I agree with the thrust of the article. Others have also written on the same subject. Data manipulation is nothing new in Pakistan but was taken to new heights duing the Mush years. Economic growth was driven by consumption and imports and not investment and exports. The economy was bound to self-destruct and it did.
Mercurial Apr 03, 2013 05:09am
A specially knitted up essay to downplay Musharraf and Kargil. The essay has managed to attract the whinging Indian readers.
A Suhail Apr 03, 2013 08:54am
Our Forex reserves will increase multiple folds again if US starts paying us billions of dollars of dole just as in the times of Mush.
khanm Apr 03, 2013 12:01pm
being manipulator is the vital sign of a good politician in pakistan...
wachucha Apr 03, 2013 12:07pm
Excellent comment!
wachucha Apr 03, 2013 12:20pm
The economic analyses presented here is totally out of context. You have to present the comparatives of before during and after Musharraf era to reach any conclusion whether it was designed to fool masses. Pakistan has scores of highly skilled economists who have a totally different point of view to this author, but we still have to read the biased account of politically aligned and politically motivated views. Not the standard of journalusm expected from Dawn. Apr 03, 2013 01:01pm
Rightly said Khalid Murad. I guess it's about time Mr. Nobodys like Kaiser Bengali teach Shaukat Aziz and other global economists a thing or two about economy. After all Mr. Kaiser has been serving the nation for so long from the comfort of his couch behind his laptop.
mohammad shafique Apr 03, 2013 01:45pm
The highest number of suicides were reported during his tenure by people driven insane by poverty, a few days ago providing security was the issue for this tinpot general. maybe government should provide same level of security which he provided benazir bhutto with.
hyderphd74 Apr 03, 2013 03:02pm
No one can provide any security to some one who is hell-bent on dying !!
hyderphd74 Apr 03, 2013 03:08pm
Excellent comment, Sir. Every one can be bought for a price.