Economic outlook -Pakistan Press Foundation (PPF)

Paksitan Press Foundtion

Economic outlook

Mohammad Jamil

Pakistan’s economic outlook will remain dismal unless our ruling elite weans itself away from profligacy, learns to live within its means and says “no” to the International Monetary Fund (IMF). They have to understand that it is not a debt trap but a death trap, as the figure for our foreign loans is likely to go up from $ 55 to $ 100 billion by 2015 when debt servicing – loan instalments and interest on foreign and domestic loans – will be around $ 10 billion per annum. It has to be borne in mind that economic stability is an indispensable condition for political stability and a strong defence. And if this is not achieved, Pakistan will have to barter away its sovereignty and remain open to blackmail like it was after 9/11 when the nation was coerced into joining the war on terror, which of course has become Pakistan’s war now. The budget will be announced today, which is a part of the planning process. Its success or failure depends on the extent to which it improves the living standards of the people or pushes more people below the poverty line.

In civilised countries, the government organises pre-budget seminars and invites suggestions from industrialists, traders and leaders of public opinion. Political parties, chambers of commerce and business organisations also present alternative budgets for the guidance of the government. But such a tradition does not exist in Pakistan. Secondly, to take loans to pay back loans, the government is obliged to work according to the dictates of the IMF. The budget will be a stereotype text starting from “the budget is aimed at providing relief to the common man, boosting economic activity by encouraging local and foreign investment, creating employment opportunities and increasing production and exports.” The State Bank of Pakistan’s (SBP’s) third quarterly report for the fiscal year 2009-10 envisaged: “Pakistan’s real gross domestic product (GDP) growth will rise to 4.1 percent in the current fiscal year against 1.2 percent last year.” One does not understand that with a decline in production due to power outages and the deteriorating law and order situation, how could Pakistan register 4.1 percent economic growth.

The report also indicated that the “current account deficit sharply declined with foreign exchange reserves improving, which was mainly due to an impressive performance of exports and workers’ remittances.” In fact, the improvement in forex reserves is due to expatriates’ remittances and also with an additional loan from the IMF. However, the quarterly report reckoned that the annual average headline Consumer Price Index (CPI) inflation would be slightly higher than earlier estimated, falling in the range of 11.5-12.5 percent during the fiscal year. The country’s overall exports and imports are likely to remain in the range of $ 19.5 billion to $ 20 billion and $ 31 billion to $ 31.5 billion, respectively, the report said. If these figures are correct, then where is the stellar performance of exports as observed in the SBP report? Secondly, by pushing Pakistan to increase its electricity tariff and interest rates, the cost of production has increased, resulting in cost-push inflation on the one hand, and making Pakistani products uncompetitive in the world market on the other, in addition to increasing poverty because of inflation.

The previous government had bragged about a reduction in poverty by 10 percent – from 34.4 to 24.4 percent. To prove its point, it had referred to an increase in the number of mobile phones in the country. But a mobile phone has become a necessity even for a plumber, carpenter and other menial workers. Furthermore, it has become a status symbol for the poor man. Therefore, the number of phones cannot be considered as a yardstick to ascertain poverty levels. The World Bank causes a lot of confusion by shifting standards to measure poverty levels. In general, if less than two dollars a day is spent on one person, he is considered to be living below the poverty line. But for Pakistan, the benchmark is different. If less than one dollar is spent on a person per day he lives below the poverty line. The calculation of one dollar a day is based on providing 2,350 calories to each individual. In Pakistan, an average family consists of five persons; and even if a worker gets the minimum pay of Rs 6,000 per month, he can spend half a dollar per person a day.

Serious efforts were never made to alleviate poverty in Pakistan, as the ruling elite considered the people mere statistical numbers, and the policies framed by the ruling elite were predicated on the assumption that if a lot of wealth is generated by people on the higher slopes of the social pyramid, the common people would automatically benefit from the ‘trickle-down effect’ of economic growth, which never happened, with the result that the rich became richer and the poor have become poorer. One does not need to be an economist to understand the nexus between poverty and poor social indicators. Lack of access to education, primary healthcare and basic infrastructure limit the potential of gainful employment for the people, which in turn leads to their marginalisation in economic and social terms. Nevertheless, the cycle of deprivation can only be reversed by a futuristic vision that reflects a basic change in the system, encompassing political, economic and social aspects.

In 2008, the World Bank and the IMF expressed concern over Pakistan’s large current account deficit and warned that further widening could compromise external debt sustainability. During consultations with officials from the finance division in Islamabad, the IMF proposed measures to arrest the deficit, which included increasing the electricity tariff, devaluation of the rupee and an increase in interest rates. Even a cursory glance would reveal that it was a recipe for disaster, because with dwindling rupee value the cost of imported raw materials and machinery went up. And together with an increase in other costs of inputs like electricity charges and bank interest, the result is the ever-rising price of essential commodities. Since the government has continued to harvest a major part of revenue from petroleum products, the people have to suffer not only in paying more for transport but also more for other items due to an increase in transport costs. It is the responsibility of the government to take measures to give relief to the masses if it cannot improve their living standards.
Source: Daily Times