'Consumption boom; taking its toll on the poor
MUZHAR JAVED
Wednesday,June 27,2007
ARTICLE (June 27 2007): The echoes of soaring and sustained growth have been sounding very strongly from the top echelons of the current regime since the day it came to power by ousting the then elected government. Seven-point agenda of President Pervez Musharraf, unfolded on October 17, 1999 set the tone for the revival of national economy.
According to the official claims, like the other military regimes, this too has been a superb success story economically. Recently the Economic Advisor's Wing of Ministry of Finance has made the economic survey 2006-07 public and is boasting of strong and sustained GDP growth rate, robust resurgence of agriculture sector, building up all-time high foreign exchange reserves, record Foreign Direct Investment (FDI), unprecedented flow of workers remittances, substantial revenue collection by CBR and shrinking the public debt.
This document lauds the incumbent regime on achieving 7 percent GDP growth rate in the current fiscal and 7.5 percent average growth rate during the last four years (2004-07). GDP growth that was 3.9 percent in 1999-00, 1.8 percent in 2000-2001 (one of the lowest in country's economic history), how it climbed and became sustainable and secular rate of growth? This is an open secret and debatable one.
This twist in economy was triggered with tremendous flow of foreign assistance taken after 9/11. Key and common cause of all the military regimes' high growth rates (from 'Ayub's 'decade of development or disaster' to current one) has been extensive foreign funding and empirical evidences suggest that growth financed by foreign assistance always proves lacklustre because saving-investment gap is filled in through non-traditional source of foreign aid.
Secondly, now a days, high growth rates are a common phenomenon in developing world. According to IMF report, 'World Economic Outlook' April 2007, the average growth rate in developing world has been 7.9 percent in current fiscal and 7.5 percent during the last four years, in India 9.2 percent in current year and above 8 percent during the last four years, in China 10.7 percent and 10.3 percent correspondingly and even Sri Lanka has witnessed the growth pace of 7.5 percent in current fiscal.
The current growth hike is quantitative in nature, devoid of 'trickle down' effect and lacks equity. The gulf between the rich and the poor has widened and according to Human Development Report, 2006 still Pakistan has Gini Index of 30.6 (zero is perfect equality and 100 is perfect inequality) that questions the liberal policies of the regime which lack balancing mechanism. Moreover the growth is consumption-led and economic managers are selling 'consumerism' as economic success.
The government hails the robust recovery in agriculture sector by putting the failure to achieve cotton and rice production original targets at back burner. In spite of bumper crops, government could not arrest the food inflation that is still rising.
Historically high foreign exchange reserves accumulated through non-traditional sources can hardly meet six months import requirements and never provide trouble-free short-term debt to foreign reserves ratio.
All-time high Foreign Direct Investment (FDI) of the regime is narrow based (confined to telecom, oil and gas and banking sector), embarrassing in comparison with traditional and regional competitor India, devoid of very purpose of employment generation and brought in through sale of state-run organisations. The sources of much-trumpeted FDI are not durable and dependable.
Record workers remittances are a more blessing in disguise of 9/11 episode and war on terror. This incident created panic for overseas Pakistanis across the world and forced them to repatriate their earnings. The government did no trick for bringing in the money of overseas Pakistanis, neither offered attractive rate of return nor investment bonanza. Moreover the workers remittances are also not hard-earned money of government and reliable source to bank on.
A very interesting fact is that only trade deficit, which is going to touch 14 billion, will wipe out total inflow of FDI, foreign remittances and assistance that is estimated around $13.50 in current fiscal. In spite of revising the original target, still current account deficit is going to make history.
Troika of economic managers' team (meaning thereby the Prime Minister who is also the Finance Minister, State Minister and Advisor on Finance portfolio) failed to tackle the twin deficits of trade and current account. Unabated twin problems of poverty and unemployment have questioned the quality of economic successes achieved. Only the severity of current power crisis is enough to gauge the depth of economic expansion of almost decade-long regime.
According to WAPDA update, the countrywide electricity shortage has increased to about 2,900MW owing mainly to continued closure of about 25 generating units across the country. This is the worst energy crisis in Pakistan's history. 'Consumption boom' has set the Consumer Price Index (CPI) and Sensitive Price Index (SPI) on upbeat tendency that are taking their toll on the poor.
Tax collection that is well on target becomes worthless when one looks at deteriorating tax-GDP ratio of 9.5 percent. This performance is further eclipsed when one casts a cursory glance at the current number of registered taxpayers which is 2.2 million according to CBR Master Index update.
The commitment and sincerity of tax administration is suspected when it leaves Real Estate and Capital Gains out of 'Tax net' only to patronise the 'Robber Barons' and 'Real Estate Army'. The government claims of breaking the begging bowl prove false when external debt has exceeded $38 billion, internal debt amounts to Rs 2500 billion, every new-born baby will owe Rs 2900 and government has allocated Rs 641 billion only for debt servicing from current budget.
An international research organisation, BCA, in its special report on Pakistan's emerging markets strategy, has characterised the country's economy as structurally weak because of a low investment ratio and lack of competitiveness. In Global Competitiveness Index ranking among total 125 countries, Pakistan stands at 91 with 3.66 points, India at 43 with 4.44 points, Sri Lanka at 79 with 3.87 points.
The report says that Pakistan's growth is driven primarily by household consumption. The macro fundamentals of Pakistan are thus inferior to those of many emerging economies.
Transparency International in its 'Corruption Perception Index' declares Pakistan 17th most corrupt country of the world (2006 report). In Human Development Index (measures the average achievements in a country in three basic dimensions: a long and healthy life, knowledge and a decent standard of living) Report among 177 countries Pakistan stands at 134th position while India at 126th and Sri Lanka at 93.
If we compare the statistics of fiscal year 1999 and 2006, then again the performance of the regime has eclipsed in major areas like inflation rate was 5.7 percent in 1999 and over eight percent in 2006; unemployment rate 5.8 percent in 1999 and 6.5 percent last year; trade deficit $1.5 billion in 1999 and $12 billion last year; the current account deficit $1.8 billion in 1999 and over $5.2 billion last year.
Above all, the current regime must be honest in self-assessment. Living in a global village, performance should not be evaluated in isolation. Regime should not compete within rather than competing with the rest of the world in general and South Asia region and 'Emerging Economies' (which are in transitional phase) in particular.
Secondly, the facts and figures should not be manipulated and maneuvered, sometimes by expressing them in absolute terms and sometimes converting them in percentage. They should be candid and have a fair play. Don't lose credibility that is more important, public is the best judge and actions speak louder than words.
For the sake of argument, let's assume that the regime has improved the performance of the economy as a whole. But the absence of 'trickle-down effect' has made the public reluctant to believe in. If still the regime turns a blind eye to the harsh ground realities and keeps on harping on the growth mantra, then 'Shinning India' episode is bound to repeat in the coming general elections.
(The writer is professor of economics at university of central Punjab, Lahore.)
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