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Pakistan’s Economy under Musharraf's Administration
PAKISTANIS have much to smile about today. Economic growth is up, according to the conventional economic indicators. This good news comes after a dismal period of more than a decade, especially in the commodity-producing sector. Exports have increased substantially in the past year and the current account shows ever-growing surpluses. Capital inflows are up, and the relatively small stock market has boomed. Budgetary trends are consistent with the declared targets. While inflation rates have gone up recently, they are still within manageable limits. All this would have appeared unlikely even a few years ago.
The 1990s was a very adverse decade as far as the material conditions of most Pakistani people were concerned. Average growth rates of national income plummeted to less than 4 per cent per annum, compared to the earlier decade's rates of more than 6 per cent per annum. As a result, the incidence of poverty rose in 1999 to 34 per cent, from 17 per cent two decades earlier. This deceleration in growth was associated with low rates of investment, as private investment failed to pick up and counterbalance the decline in public spending.
General Pervez Musharraf, immediately after taking power, concentrated on developing the economy and on improving governance. With a population now approaching 150 million, and a high incidence of poverty, there can be no doubt that the primary challenge for any government would be to improve the living standards of the people. Musharraf's administration concentrated on the macro-management of the economy, in order to lay the foundation for sustained growth. 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 Balochistan, where the 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.
In the contemporary world, a country's international relationships can contribute significantly to its economic development. Musharraf gave due weight to this aspect, and sought the cooperation of major international financial institutions such as the World Bank and the IMF, in stabilizing the economy in general, and managing the country's debt problem in particular. In several ways, the willingness of the Musharraf regime to be a key ally of the US in the war on terror had substantial effects upon the economy. It has meant the waiver or rescheduling of more than one-third of Pakistan's external debt, which provided much-needed short-term relief. It has led to increased foreign aid flowing to Pakistan.
Some key results have been achieved. This significant cash inflow has enabled the government to balance its books and increase economic growth. Additionally, 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. The country's foreign exchange reserves grew at a fast pace, and rose to nearly $12 billion. 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 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.
Pakistan’s economy continues to gain traction as it experiences the longest spell of its strongest growth in years. The outcomes of the outgoing fiscal year indicate that Pakistan’s upbeat economic momentum remains on track. Economic growth accelerates to 7.0 percent in 2006-07 at the back of robust growth in agriculture, manufacturing and services. Pakistan’s growth performance over the last five years has been striking. Average real GDP growth during 2003-07 was the best performance since many decades, and it now seems that Pakistan has decisively broken out of the low growth rut that it was in for more than one decade. Economic growth has been notably stable and resilient. With economic growth at 7.0 percent in 2006-07, Pakistan’s real GDP has grown at an average rate of 7.0 percent per annum during the last five years (2003-07) and over 7.5 percent in the last four year (2004-07) in running. Compared with other emerging economies in Asia, this puts Pakistan as one of the fastest growing economies in the region along with China, India, and Vietnam. The good performance has resulted from a combination of generally sound economic policies, on-going structural reforms and a benign international economic environment. Based on the performance of half-a-decade of strong, stable, resilient and broad-based economic growth it appears that Pakistan’s economy will continue to be a high mean, low variance economy over the medium-term.
Pakistan is in the midst of its strongest economic expansion phase and its growth momentum is broad based. All the three major sectors, namely, agriculture, industry and services have provided support to strong economic growth. The commodity-producing sectors (agriculture and industry) contributed 2/5th and services sectors contributed remaining 3/5th to the real GDP growth of 7.0 percent in 2006-07. Within the commodity-producing sectors, the contribution of agriculture alone has been 15 percent (or 1.1 percentage point) while 25 percent (or 1.8 percentage point) contribution to this year’s growth came from industry. Services sectors as a whole contributed almost 60 percent (or 4.2 percentage points) to this year’s strong economic growth.
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