The S&P which maintained a positive outlook on rating since November 2005, recently lowered it to stable on rising security and political risks.
Stock markets slumped on incidents of suicide bombings particularly in Islamabad and on the news relating to imposition of emergency. Yet, many believe any political change is unlikely to bring any fundamental shift in economic policies.
All the business leaders, bankers and multinational executives who were approached by this correspondent shared the president's concern. Some agreed with the president with reservations and expressed themselves in guarded language; a few were blunt, straight forward and were worried while some believe that a national political reconciliation can halt deterioration and even reverse the adverse trend. All of them want the government to have a hard look at its economic policies- taxation strategy, monetary policy, inflation control etc.- and also at its political agenda.
“How come it is that after showing a sustained average annual growth of seven per cent for last five years, the national economy is now under pressure of rising inflation and mounting trade imbalance, a former president of the Karachi Chamber of Commerce and Industry remarked and wondered as to how the performance of the industry and agriculture, the two main pillars of the economy, seem to have suffered from sharp fluctuations from year to year.
Businessmen say that for the last seven years the government focussed on economic growth only without giving any consideration to its quality. The real sectors - agriculture and industry - did not contribute as much as the services sector and therefore the growth did not generate the number of jobs as it should have. Banks, insurance, financial services and brokerage houses grew at phenomenal pace and opened up new job opportunities with attractive compensations but to a much a smaller number of qualified persons.
While there was hardly any investment worth the name in agriculture, industrial expansion was more capital intensive with much less job generation. The new labour laws deny the trade unions bargaining power. No wonder the inequalities are on the rise which are manifesting themselves in growing social and political tensions — also a matter of concern for President Musharraf.
“The number of people living on less than one dollar a day has fallen everywhere (in Asia) except in Pakistan and Bangladesh'', the latest issue of London Economist reports on income inequality and poverty in Asia.
In another observation, the journal says: “Even where inequality has increased sharply, the poorest 20 per cent of households are still better off in real terms than they were 10 years ago everywhere, except in Pakistan and Bangladesh''. The British journal informs that that the share of India's population living on less than a dollar a day fell from 42 per cent in 1993 to 35 per cent in 2004. China saw a sharper fall from 28 per cent to 11 per cent thanks to a faster growth.
“Where is the trickling down effect of economic growth in Pakistan?'', is the logical question for which the government has only one answer that per capita income is now about to touch 1,000 dollars, ratio of people living under poverty is on decline and unemployment is being reduced. The increase in per capital income emanates from rebasing of the economy a few years ago which was questioned by the economists and institutions like Social Development and Policy Centre (SPDC).
The government never shared the modalities of rebasing economic data and indices with the independent economists. “Even if there is some trickling down effect of an annual seven per cent economic growth in last five years, it is painfully slow and is showing no visible signs'', an active trade unionist remarked.
“Pakistan's exports to Afghanistan are down by 60 per cent in last few months while the volume of transit trade is up by 200 per cent'' Amjad Rashid quoted an official report which Prime Minister's Adviser on Finance Salman Shah quoted in a recent meeting with vegetable ghee and cooking oil makers.
Amjad Rashid is an international food merchant with stakes in textile and vegetable ghee industry and he is at present the President of the All Pakistan Vegetable Ghee Manufacturers Association. He is also Chairman of the Federation of Pakistan Chambers of Commerce and Industry's, Finance and Banking Committee. A former banker, he is unhappy with the monetary policy that neither controls inflation nor helps in growth of industrial production.
“Taxation, monetary policy and growing trade imbalance is impacting on our production cost, and rendering our exports uncompetitive in Europe and USA'', Aziz Memon, a name in Pakistan's readymade garment export business, said.
Following recent US legislation on assistance to Pakistan, statements of the EU leaders on Pakistan's political issues tend to cloud business with multinationals. Multinational executives in their private conversation have a lot to say on politics and business but are not ready to offer ‘on the record’ comment.
Senior bankers and securities houses seem to be the only happier lot who see a “shining Pakistan” all around. They are convinced that about Rs2 trillion bank loan given to various sectors of the economy is manifestation of prosperity. “Shopping malls are crowded, elite educational institutions receive more applications from students than the capacity and a record number of students are going for higher education abroad than ever before'', a senior banker in a privatised bank said.
But then he too shared the concern that “all is not well” and something is needed to be done. He concedes the income inequality generated in Ayubian decade caused a massive backlash resulting in dismemberment of Pakistan and triumph of a radical Islamic socialism that resulted in nationalisation of industry, banking, insurance and shipping.