Pakistan’s rising economic growth rate since 2002-03 in general and its peak at 8.4 per cent in 2004-05 in particular has made the country’s top brass so sanguine about the economy that the indicators of inequities and poverty already on the slow burner have not only been receiving lesser attention but ones like inflation and trade deficits too are being ignored.

While inflationary pressures are felt by all, trade deficit rose from $1.3 billion in the first quarter of FY05 to $2.6 billion during the first quarter of FY06. While exports grew by 14% YoY during FY06’s first quarter, imports rose by 34 per cent YoY during the same period. One needs to know from government sources whether imports have increased only due to oil and capital goods or also due to the import of other goods.

For, the future of local industry needs to be determined if competing imports are allowed in liberally. This raises the issue of manufacturing growth sustainability that is, in any case, being spurred greatly by bank financing schemes. Agriculture cannot be banked upon much due to the many ‘uncontrollable factors’ that influence agricultural output.

Growth of the manufacturing sector is dependent in the long run on the growth of purchasing power of people that is not likely to expand much for as long as the current inequitous structures remain intact. To compensate for these inequities, money is being injected into the pockets of potential buyers to create demand that would not have existed otherwise. It is important to determine the extent to which this phenomenon will sustain itself given the narrow consumer base in our country. For, many might want to draw parallels with the affluent North American societies where too most purchases are credit financed.

This analogy, if drawn, will be misplaced because in North America, unemployment remains low closer to the natural rate of unemployment. The rate of unemployment is virtually lowered further due to government’s welfare programs and unemployment benefits. So, even the unemployed are provided money in their pockets to continue to interact in the markets of products and services.

Demand generation is pretty much ensured even in times of emergencies so that the wheel of the economy either keeps turning or picks back up again after not too long a time. The next generations are provided opportunities enough to keep casting their dollar votes in favour of goods and services. The labour gap is closed by closely calibrated immigration. Gainfully employed immigrants keep generating demand. The situation is much to the contrary in our country.

The existing narrow consumer base can be made to purchase through credit schemes and one wonders for how long. There is considerable outmigration of capable professionals due to a dearth of opportunities on home ground. We, therefore, see potential consumers of the future leaving the homeland thereby reducing the possibility of that much further expansion of the consumer base. Those who are out of the market system remain so due to inequities and poverty.

This is a large chunk of lost market and, therefore, of lost output and lost growth possibility that cannot be tapped even for new textile products leave alone for other expensive manufactured consumer durables. Our textile industry, always on the lookout for export markets, should have established a large and wide enough foothold in none other than the home market of over 100 million people since end-1980s.

This was not to be because all of these over a 100 million people are not necessarily significant consumers of new textile products simply because even new textile products cannot be afforded in large enough quantities by all of them. If almost over 60 per cent of our population uses used textile products, the population does not provide a big enough market even for less expensive new textiles despite its residence in the country.

And, if over 60 per cent population cannot even afford new clothes, the assumption that credit-financed durable purchases have placed our economy on a sustainable growth path just because durables are credit-financed in North America too is a false simplistic belief based on a misplaced analogy drawn between our country and the economic power house of North America.

This assumption fails to take into consideration all the other factors that fuel growth and shared prosperity alike in North America. It is no wonder then that what we have is growth but not shared prosperity. And, a growth that may not even be sustainable.

Early-January 2006, the ADB forecast a GDP growth rate of only 6.5% for FY2005-06 compared to 8.4 per cent the previous year. If actual matches ADB’s prediction, growth will be closer to the FY04 level’s. While both cotton and sugar-cane crops are expected to be lower than last year’s, large-scale manufacturing output growth declined to 8.7 per cent during the first quarter of FY2005-06 as compared to a growth of 24.9 per cent during the same corresponding period of the previous year as per the ADB.

Further, growth in textiles and food slowed down to 7.2 and 10 per cent\ respectively compared to 29.6 and 13.5 per cent registered last year. So, growth in cell phone users and teledensity is no reason for being smug about the strength of the economy that requires a lot more substance before it can be called strong and robust, ala the Prime Minister.

The prime minister is sanguine even in the wake of the earthquake. He believes that the economy is “gaining strength and the country would be able to achieve its growth target” despite the devastation. First, strength of the economy is not distinct from the economic strength of the people.

Given the inequities, poverty levels, violence, and rising discontent, it is embarrassing to call a weak economic situation strong. Second, SPDC is not too sanguine about the rate of economic growth in the wake of the devastating quake.

According to SPDC (December 2005), “the earthquake could initially shave off 1.5 percentage points from economic growth …… the assumed rebuilding effort of $5.8 billion over a five-year period will bring the economy back only half-way to the path that would have prevailed in the absence of the earthquake.”

Despite the government claims about a “successful relief effort,” there are people stuck in snow covered mountains in extremely harsh winter conditions in tents that are not winterized. The claims of our leaders in foreign countries notwithstanding, the fact that media are being managed about the coverage of quake victims in remote areas reveals how effectively the relief operation has been conducted. If relief is less than satisfactory, how effectively will reconstruction be conducted that is expected to impact growth favourably.

We then bank our hopes on increased foreign investment and greater access into the markets of developed countries to spur growth. And, our 8.4 per cent growth rate is invariably used to attract investors even though it could have been the peak followed by a decrease as noted above on the basis of independent research. It is crucial to realize that growth rates alone do not beget foreign direct investment (FDI).

There should be a climate conducive for FDI that is currently not the case. Pakistan may be an ally in the war on terror but conservativeness abounds as is being openly displayed through opposition to the Lahore marathon now and also through terror attacks on those dissimilar religiously. Inabilities to deliver justice to women and jirga injustices have featured prominently on the world stage now telling the whole world about our intolerant tribal culture.

Violence in Balochistan due to which human lives, railway tracks, and utility supply lines are all endangered is hardly a condition that will allow FDI in a big way. Induced economic growth rates cannot offset the above glaring socio-economic indicators of underdevelopment and deterrents to FDI. For, these cannot be kept concealed from the world like the quake victims in snow-covered mountains.

And, with continued inflationary pressures, the SBP is trying to maintain a tight monetary policy that an independent SBP should not relax in the interest of growth alone. SBP is attempting this in the face of very high government pressure on it to relent. It is unfortunate to see the prime minister’s economic adviser talk about government’s intent vis-à-vis monetary policy when this policy is not the domain of the government. This blurring of distinction about turf shows the counterproductive obsession with growth to the neglect of other indicators of development and of other factors that feed into sustained growth. Forcible achievement of an economic growth target is no cause for being sanguine on the economic front unless a multi-pronged effort is launched in the direction of what all may view as economic development.