Growth with equity

HAVING achieved an average economic growth rate of seven per cent over four successive years, the government is now targeting a 7.2 per cent GDP growth for fiscal year 2007-08. The track record raises hope that Pakistan has not only the potential but also the wherewithal to join the league of Asian countries with decades-long sustained growth — a trend that is becoming more global. But one cannot be sure that the growth strategy now being pursued, resulting in the worsening of major macroeconomic indicators, can really protect the economy from the long-term risks of a possible slowdown. As is evident from a significant gap this year between budgetary targets and the revised provisional estimates, particularly the receding growth of industrial production and exports, the future course of development seems to remain uncertain. Industrial growth is down to 6.8 per cent against the budget estimate of 11 per cent and large-scale manufacturing has recorded a growth of 8.8 per cent, falling significantly short of the 13 per cent target. Similarly, export earnings are now pitched at $17.2 billion this year against the original projection of $19.8 billion. Despite the rise in home remittances and foreign investment — which together account for about $11-12 billion — the record current account deficit is expected to rise to $7.1 billion, mainly because of a very high trade deficit of $9.9 billion.

The current account deficit can be financed in the short run from international capital inflows but, as rightly pointed by the State Bank of Pakistan, global capital “can be volatile and sensitive to a host of domestic and global factors (both economic [and] political)”. Before the economy suffers a setback, it is imperative to boost exports of merchandise beginning with the next budget, focusing on manufacturing and by taking steps to increase the dismally low rate of domestic savings. The savings rate has been eroded by persistent high inflation, currently estimated at 7.6 per cent as against the budgeted target of 6.5 per cent. With increasing interest rates and decreasing purchasing power, consumer financing by banks has dropped by a huge 42 per cent in nine months during the current fiscal year. The share of consumers, along with exports, in GDP growth is falling. But a positive development this year has been a robust growth in direct taxes, a trend that, if sustained, can ultimately help lessen the heavy burden of indirect taxes on poor consumers.

Going by the official pronouncements, next year’s budget holds out some promise for the common man. As indicated by the secretary-general of finance, the salaried class and the common people will get relief though increases in their pay and pensions. The long-delayed plans for low-income housing are to be initiated. The size of small loans, which have so far not gone towards the uplift of the poorest of the poor, will be increased. How much these provisions will benefit the common people will be known only after the budget has been announced. Unlike the past two to three years, the economic growth this year is more broad-based coming from all three sectors — industry, agriculture and services. It is a positive trend. But the worsening macroeconomic indicators and structural imbalances pose a daunting challenge to the policymakers. It is time to address issues relating to the fundamentals of the economy to manage sustainable growth with equity.

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Time is like a river.
You cannot touch the same water twice,
because the flow that has passed will never pass again.
Enjoy every moment of life.

I have learnt silence from the talkative, toleration from the intolerant, and kindness from the unkind; yet strange, I am ungrateful to these teachers.