12.STRUCTURE OF PAKISTAN"S ECONOMY:

Economy - in greater depth:

Extreme poverty and under development in Pakistan, as well as fiscal mismanagement that has produced a large foreign debt, obscure the potential of a country which has the resources and entrepreneurial skill to support rapid economic growth. In fact, the economy averaged an impressive growth rate of 6 percent per year during the 1980s and early 1990s. However, the economy is extremely vulnerable to Pakistan's external and internal shocks, such as in 1992-93, when devastating floods and political uncertainty combined to depress economic growth sharply and the financial crisis in Asia which hit major markets for Pakistani textile exports. Average real GDP growth from 1992 to 1998 dipped to 4.1 percent annually.

Since the early 1980s, the government has pursued market-based economic reform policies. Market-based reforms began to take hold in 1988, when the government launched an ambitious IMF-assisted structural adjustment program in response to chronic and unsustainable fiscal and external account deficits. Since that time the government has removed barriers to foreign trade and investment, begun to reform the financial system, eased foreign exchange controls, and privatized dozens of state-owned enterprises. Pakistan continues to struggle with these reforms, having mixed success, especially in reducing its budget and current account deficits.


Economic reform was further set back by Pakistan's nuclear tests in May 1998 and the subsequent economic sanctions imposed by the G-7. International default was narrowly averted by the partial waiver of sanctions and the subsequent reinstatement of Pakistan's IMF ESAF/EFF in early 1999, followed by Paris Club and London Club reschedulings. The Sharif government had difficulty meeting the conditionality of the IMF program, which was suspended in July 1999. The government announced a program of reforms as a Poverty Reduction and Growth Facility which began in July 2000.

With a per capita gross domestic product of about USD 441, the World Bank considered Pakistan a low-income country. No more than 39 percent of adults are literate, and life expectancy is about 62 years or less. The population, currently about 130 million, is growing at about 2.6%, very close to the GDP growth rate. Relatively few resources have been devoted to socio-economic development on infrastructure projects. Inadequate provision of social services and high population growth have contributed to a persistence of poverty and unequal income distribution.

Agriculture and Natural Resources

Pakistan's principal natural resources are arable land and water. About 25% of Pakistan's total land area is under cultivation and is watered by one of the largest irrigation systems in the world. Agriculture accounts for about 24% of GDP and employs about 50% of the labor force. The most important crops are wheat, sugarcane, cotton, and rice, which together account for more than 75% of the value of total crop output. Despite intensive farming practices, Pakistan remains a net food importer. Pakistan exports rice, cotton, fish, fruits, and vegetables and imports vegetable oil, wheat, cotton, pulses and consumer foods.

The economic importance of agriculture has declined since independence, when its share of GDP was around 53%. The government , introduced agriculture assistance policies, including increased support prices for many agricultural commodities and expanded availability of agricultural credit. From 1993 to 1997, real growth in the agricultural sector averaged 5.7% but has since declined to less than 4%. Agricultural reforms, including increased wheat and oilseed production, play a central role in the new government's economic reform package.

Pakistan has extensive energy resources, including fairly sizable natural gas reserves, some proven oil reserves, coal, and large hydropower potential. However, the exploitation of energy resources has been slow due to a shortage of capital and domestic political constraints. For instance, domestic petroleum production totals only about half the country's oil needs. The need to import oil also contributes to Pakistan's persistent trade deficits and the shortage of foreign exchange. The current government has announced that privatization in the oil and gas sector is a priority, as is the substitution of indigenous gas for imported oil, especially in the production of power.

Industry

Pakistan's manufacturing sector accounts for about 26% of GDP. Cotton textile production and apparel manufacturing are Pakistan's largest industries, accounting for about 64% of total exports. Other major industries include cement, fertilizer, edible oil, sugar, steel, tobacco, chemicals, machinery, and food processing. Despite ongoing government efforts to privatize large-scale parastatal units, the public sector continues to account for a significant proportion of industry. In FY 1998-99, gross fixed capital formation in the public sector accounted for about 38% of the total. In the face of an increasing trade deficit, the government hopes to diversify the country's industrial base and bolster export industries.

Foreign Trade and Aid:

Weak world demand for its exports and domestic political uncertainty have contributed to Pakistan's high trade deficit. In Fiscal year 1998-99, Pakistan recorded a current account deficit of $1.7 billion, only a slight improvement over the FY 1997-98 current account deficit of $1.9 billion. Pakistan's exports continue to be dominated by cotton textiles and apparel, despite government diversification efforts. Major imports include petroleum and petroleum products, edible oil, wheat, chemicals, fertilizer, capital goods, industrial raw materials, and consumer products. External imbalance has left Pakistan with a growing foreign debt burden. Principal and interest payments in FY 1998-99 totaled $2.6 billion, more than double the amount paid in FY 1989-90. Annual debt service now exceeds 34% of export earnings.

Pakistan receives about $2.5 billion per year in loan/grant assistance from international financial institutions (the World Bank, and the Asian Development Bank) and bilateral donors. Increasingly, the composition of assistance to Pakistan has shifted away from grants toward loans repayable in foreign exchange

POVERTY IN PAKISTAN:

Poverty in Pakistan is an increasing social problem and represents the critical challenge to be addressed by the Government of Pakistan. It is estimated that about 32% of Pakistan's population are below the food poverty line rising from a level of 26% in 1988 (GoP, 2002), and about 44% are below the poverty line on the human poverty index (UNDP, 2002). The implication here is that a significant proportion of Pakistan's population does not have adequate levels of food, access to basic services and opportunities and hence are particularly vulnerable to economic, environmental and political shocks. Add to this the fact that 65% of Pakistan's population lives in rural areas and it is here that the bulk of Pakistan’s poor (about two-thirds) are found.

More importantly, it has now become increasingly apparent that a critical dimension of poverty has not been given sufficient attention..

PRESENT GOVERNMENTS ENDEAVOURS:

The present government is solely committed to poverty alleviation,. Poverty is presented as a problem that has never been successfully addressed. In fact, it is not that poverty has yet to be understood; it is because the right approach has not been applied.

The roots of poverty are not in the community at the grassroots level. Poverty is essentially a socio-political product of the systems imposed from the top -- at national and international levels

The plight of the common man is deeply affected when the prices go up; food subsidies are abolished; transport becomes more expensive; electricity, gas, and other basic services go up; and then education, and health budgets practically disappear. All this doesn't hurt the elites much because they can afford private services. The idea that all countries can find a niche and something to export more easily and at less cost than others doesn't work because there are already monopolies and the debtor countries are now exporting abnormally high amounts of goods.

STRUCTURAL ADJUSTMENTS:

Structural adjustment programs are often beneficial . There is the rethinking of poverty alleviation strategies which is required . However as long as the root causes of poverty at the upper levels remain intact, poverty cannot be solved using one blanket approach -- providing everyone with soft loans. The international donor community, including the World Bank and Asian Development Bank continue showering people with micro-credit expecting them to recover and show an increased consumption rate.

The international donor community is generally insensitive to the context of our poverty problems and continues to judge the situation according to the macroeconomic management --which speaks only about fiscal and monetary policies whose instruments, ultimately, are loans and interest.

We have to rethink our strategy in poverty alleviation, we have to study and develop the potential to overcome our poverty, which seems to have expanded as well as deepened, because of the lack of a comprehensive approach; following donor's agenda without its relevance to the local conditions; high social, political and economic inequality, and high inflation relative to rise in income for fixed income groups.