The military government will be completing its three years next month. Multilateral aid agencies like the IMF, the World Bank and the Asian Development Bank have given the government very high marks for what they believe to be its competent management of the economy.
In fact, top representatives of these organizations have warned that they would stop their aid to the country if it deviated from the course it has set itself on in the economic field. Pakistan is likely to be touted by them as a country which came out of its economic depths by strictly adhering to their prescriptions.
And why not. If you go through the claims of successes this government is supposed to have achieved in the last three years, you too would be convinced of the efficacy of the prescription. Here are some of its claims:
(1) Industrial production averaged 3.9 per cent during 1990-99. It averaged 6.5 per cent during 2000-02. (2) Inflation averaged 10.4 per cent during 1990-99. It averaged 3.5 per cent during 1999-02. (3) Tax revenue stood at Rs308 billion in 1998-99. This government added almost Rs100 billion in 3 years which stood at Rs. 404 billion in 2001-02. (4) Overall fiscal deficit averaged 7 per cent of GDP over the last two decades. It has now been reduced to 4.9 per cent of GDP in 2001-02 and is projected to decline further to 4.4 per cent on 2002-03. (5) External debt and foreign exchange liabilities stood at $38 billion in 1998-99.It is now reduced to $36 billion. (6) Domestic debt was growing at an average rate of 16 per cent per annum during 1990-99. Last year 2001-02 , domestic debt declined in absolute term from Rs1800 billion to Rs1754 billion — a reduction of 2.5 per cent. (7) Debt servicing as percentage of total revenue was 63.5 per cent in 1998- 99. It declined to 49.7 per cent in 2001-02 and projected to decline further to 44 per cent in the current fiscal year. (8) Exports averaged at $8. 3 billion in 1994-99 but crossed over $9 billion today ( Sept. 4, 2002). (9) The workers’ remittances averaged at $2.31 billion during 1980s and $1.45 billion in the 1990s. However, these remittances which were $1.06 billion in 1998-99 had remarkably increased to $2.38 billion during 2001-02. (10) Foreign exchange reserves stood at $1.6 billion in October 1999 but Pakistan always remained vulnerable to very low foreign exchange reserves. By the grace of God, foreign exchange reserves now stand $7.6 billion—highest in the country’s history. Nobody now talks of default. (11) Deficit in external account averaged almost 5 per cent of GDP in 1990-99. It has now turned surplus to the extent of 2.5 per cent of GDP in 2001-02. (12) Strong reserves have provided much-needed stability in exchange rate. Today the exchange rate is not only stable but predictable. (13) The government has launched a credible poverty reduction programme and is spending Rs161 billion in the current fiscal year. Spending on poverty-related programme increased from Rs133.5 billion (3.6 per cent of the GDP) in 2001-02 to Rs161 billion in 2002-03—an increase of 20.6 per cent.
However, despite all these ‘successes’ during this period the economy slowed down considerably from an average of little over 4 per cent during the previous decade to about a little over 3 per cent on an annual average. On the other hand the budgetary deficit which had hovered around a little less than 7 per cent of GDP on an annual average during the previous decade has remained almost the same in the last three years, notwithstanding the blatantly misleading claims of the government that it has been reduced to 4.9 per cent of GDP in 2001-02. The expenditure on poverty alleviation is still a promise. It will only be known at the end of the year how much was actually spent on poverty alleviation. However, as long as Wapda, KESC and the CBR remain burdens on the exchequer, the economy can hardly be expected to have come out of the pits it had fallen into.
Take for instance the government’s claim on industrial production. The latest Economic Survey 2001-02 has a totally mixed story about it. According to the Survey the production of most of the major industrial goods has only gone down in the last three years compared to the average annual production of these items in the 1990s. Inflation came down in the last three years only because the demand has gone down significantly because of lowering of purchasing power of consumers, a considerable number of whom are unemployed.
Also, the consumption of gas and electricity during the last three years which is much lower than their consumption during the 1990s which makes the claim of increase in industrial production that much suspect.The Rs. 100 billion difference in the collection of revenues over what was collected in 1998-99 is because of the extortionist measures adopted in the year 2000. In fact the difference between the collection in 2002-01 and 2001-02 actually reflects the stagnation in the economy as represented by the average annual growth rate of a little over 3.5 per cent in the last three years.
The reduction in external debt is because of the goodies Pakistan received as a result of the services rendered to the international community in its war against terrorism. It is certainly not because of any improvement in the debt management or because of the so-called on-going structural reforms.
The reduction in overall debt servicing is due to the generous rescheduling Pakistan was granted by the Paris Club again as a reward for the services. Remittances increased this year because,in view of the fact that western and Gulf countries tightened vigilance on informal channels of remittance, most of the Pakistanis living abroad have started remitting their savings to Pakistan.
This, therefore, is happening not because of any confidence in the so-called stability of Pakistan’s economy. At least more than half of the foreign exchange reserves of $7.5 billion have been purchased from the market by printing Pakistani currency without having any reference to the actual economic activity in the country. External account deficit has narrowed because of the slump in imports and not because of any extraordinary increase in exports which have remained stagnating at $9 billion against $8.3 billion in the last year of democratic government. And the strengthening of the rupee vis-a-vis dollar is not because of the massive FE reserves but largely because the US is buying rupees to finance its strategic operations in both Afghanistan and Pakistan.