ISLAMABAD, 7 March 2004 — The past year, the first after the elections of October 2002, saw the elected government continue the policies initiated by Gen. Pervez Musharraf that had concentrated on developing the economy, and improving governance. The sound basis provided by President Musharraf led to stability and revival of economy. Corruption, nepotism, red-tapism and bureaucratic slackness were rooted out from economic institutions. The economic policies initiated by President Musharraf baffled world economists and did miracles by reviving Pakistan’s economy and imbedded life in industrial sector of the country and foreign investors poured into Pakistan despite reports of turbulent borders and incidence of religious fanaticism in the country.
During his three years rule of President Musharraf concentrated on the macro-management of the economy, to lay the foundation for sustained growth. The infrastructure, in terms of communications, energy and water supply, was given priority, with the long-neglected railway network receiving attention so that it became profitable. Highways and ports remained priority areas, notably in Baluchistan where Gwadar Port project proceeded apace, as did the Saindak project, both with Chinese assistance. Social services, including education and health facilities were allotted increased resources, with special emphasis on science and technology.
The revenue collection was improved, resulting in a substantial decrease in the budgetary deficit. The rate of inflation that had been in double digits over several years came down, which also contributed to economic stability. The country’s foreign exchange reserves grew at a fast pace, and rose to nearly $12 billion, that is equivalent to cost of imports for 10 to 11 months. The most important breakthrough was achieved when exports rose above the static level of $8 billion in 2001, which was maintained, with the target of $11 billion for the current year well within reach.
The rate of GDP growth in the current year will rise to 5.3 percent, from 5.1 percent last year, and this improvement will be accelerated as all the measures being taken in the public and private sectors bear fruit. The main thrust of financial management has been that the government promotes an environment conducive to investment and growth, and the private sector then utilizes the opportunities for profitable activity. There are several elements involved in improving the environment. These include reduction of the debt burden, improving governance, and liberalization of credit for the private sector.
In January, Pakistan paid back 14 loans worth $1.17 billion, to the Asian Development Bank, effecting a saving of $300 million in interest payments. The level of debt is being constantly reduced since 2000. Widespread corruption in developing countries has been a major hindrance to economic growth. The government has taken decisive action through the National Accountability Bureau (NAB), and corruption at the higher level has virtually disappeared. More obviously needs to be done to eliminate corruption and nepotism at the lower level of administration. Improved salaries for medium and low-level employees are an obvious solution to the problem of making the two ends meet.
Among measures to liberalize credit, the lowering of interest rates within the country may have reduced returns on savings, but liquidity has increased tremendously. Pakistan has floated Eurobonds worth $500 million, to tap the international market. Pakistan is also ahead of many developing countries in liberalizing trade. The average level of tariffs was only 16 percent. At the same time, Pakistan was shifting from exporting raw materials such as cotton, and increasing value-added items in exports, thus achieving a substantial increase in earnings from exports.
The annual conference of the Pakistan Institute of Development Economics held in January 2004 concentrated on factors impeding poverty amelioration, and strategies necessary to generate growth and employment. A wide variety of views were expressed, but the bottom line was that an increase in production held the key to both, and that it was imperative that investment into education, and in creating new skills should be stepped up.
The devolution introduced by President Musharraf has also shifted the responsibility for addressing local requirements on local authorities, and it is expected that development funds will be used more effectively through the association of local leadership.
The post 9/11 period has seen a higher allocation of international assistance to Pakistan, and both bilateral aid from donor countries, and resources made available by multilateral institutions are being utilized to speed up development. Major donor countries, such as the US, Japan and EU have increased their assistance substantially, with the US allocating $3 billion, to be utilized over five years.
Since international investment has assumed greater importance in transfer of financial resources to developing countries, Pakistan has also taken measures to make the environment attractive for foreign investors. There has been a steady increase in foreign direct investment (FDI) over the recent years. This is partly due to the investor-friendly policies, and partly to efforts made personally by President Musharraf and Prime Minister Mir Zafarullah Khan Jamali to induce friendly countries to invest in Pakistan. Pakistanis settled overseas are also manifesting greater interest in investing in the motherland.
With encouraging trends in evidence in South Asia, and prospects for closer interaction with Middle East, especially Saudi Arabia, Pakistan’s economy is heading for accelerated growth. The internal stability following the restoration of constitutional government promises to provide an environment conducive to investment that should increase employment opportunities, and reduce poverty. The government is right to concentrate on macro-management, and on developing the infrastructure for growth, leaving it largely to the private sector to increase production both to feed the domestic market and to increase exports.
