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Economic outlook

02 January, 2014

By Malik Muhammad Ashraf


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Managing an economy is the most convoluted and arduous undertaking, more so in countries like Pakistan, confronted with acute resource constraints, astronomical national debt, a snowballing energy crisis, dwindling foreign exchange reserves, declining foreign investment, low rate of Gross Domestic Product (GDP) growth and a volatile law and order situation.

During 2008-2013, the GDP growth rate remained less that three percent and the national debt increased from Rs 6,700 billion to Rs 14,800 billion, with the result that a big chunk of the national income had to be diverted to debt servicing to avoid default on the international loans, putting further strains on the availability of resources for development and welfare purposes. The government had perforce to resort to borrowing and printing of notes to meet the expenses. It could not take plausible and effective measures to break this vicious circle, which was made more difficult by the ever deteriorating law and order situation in the country. This kept foreign investors away and also forced some Pakistani investors to shift their businesses to some other countries.

When the present government was voted into power, the economy undoubtedly was on the verge of collapse and the country was in the grip of a severe energy crisis, which not only hampered industrial development leading to increased unemployment but also made the lives of the masses miserable. The shortage of electricity arguably is a consequence of the inept power policies of the previous regimes that showed criminal apathy to the growing energy needs of the country and failed to initiate new power projects. Similarly the gas shortage occurred due to the unimaginative policy of the Musharraf regime, which authorised the setting up of CNG stations without realising the consequences for domestic consumers and industry.

The PML-N government has shown an unswerving commitment to revive the economy and to surmount the energy crisis. One thing however needs to be understood is that there is no quick-fix solution available to rectify the situation and atone for the blunders committed by previous governments. It requires huge resources and no definite time line can be given in this regard. Those who expect miracles would definitely be disappointed because miracles do not happen. Overcoming the energy crisis will require at least five years.

The PML-N government has completed six months I office and I think it is not a long enough period to fix all the ills afflicting the economy. The performance of the government would therefore have to be judged on the touchstone of trends that it has been able to set in different areas due to its policy initiatives. Immediately after assuming charge it paid off the circular debt of Rs 500 billion, which was the cause of power outages. The move considerably eased the situation. The current power shortage, which undoubtedly is again hurting the people, is due to the seasonal fall in the production of hydel power owing to low water level in the rivers during winter, which is beyond the control of any government.

Similarly the gas shortage, apart from the CNG stations, is also due to the fact that the government has taken a prudent decision to provide more gas to industry, especially textiles, to benefit from the Generalised Scheme of Preferences (GSP) Plus status that the EU has conferred on Pakistan. This will boost our exports by $ 1-2 billion with all the accompanying benefits like enhanced employment opportunities and rejuvenation of economic activity through its multiplier impact. This decision was essential to break the vicious circle that our economy is stuck in. It is likely to hurt certain sections of society in the short run as is the case presently. But considering the long term impact of this move, people will have to bear with the government till such time when the real turnaround takes place.

It is a reality that the government is engaged in tackling the energy crisis on top priority basis. It has already initiated work on an Energy Park at Gaddani where ten coal-based power projects with a cumulative power generating capacity of 6,600 MW are to be set up within the next five years. The Prime Minister has already performed the groundbreaking ceremony of a nuclear power plant at Karachi with Chinese assistance that will start producing 2,200 MW electricity by 2017. China has committed to provide $ 6.5 billion for the project. Some progress has also been made on the stalled Pak-Iran Gas Pipeline. The government is also engaged with the US government to start some projects in the power sector with their assistance. So the government is on track with regards to the energy situation and hopefully the country will wade through the energy shortages within the next five years.

In regards to fixing the economy, the government has made considerable progress. To begin with, it successfully negotiated with the IMF for a fresh loan of $ 5.3 billion, which was necessary to save Pakistan from defaulting on the international loans and also to revive the confidence of the international investors. Recently the IMF has released the second tranche of $ 553 million. The efforts of the government to raise money at the international level have also started producing results. A delegation of Bank Credit Suisse that visited Pakistan last week has shown interest in joining a consortium which will provide a balance of payments loan of $ 225 million to Pakistan, likely to be made available in January 2014.

The delegation in a meeting with the Finance Minister observed that the international capital markets had a growing interest in Pakistan and the investors were looking forward to the planned issue of Euro Bonds and the initiatives for accessing international markets. The stock exchange index is on the upward curve and the multinational companies operating in Pakistan have made additional investments in the country. The GDP recorded a growth rate of 5.1 percent during the last quarter as compared to 2.1 percent during the corresponding period last year. All these are healthy and encouraging signs in regards to the revival of the economy made possible by the economic strategy of the present government. Patience is the name of the game.

What this means is that we managed to produce an additional trillion rupees worth of goods and services, making Pakistan a trillion rupees richer. Each and every Pakistani is thereby richer by Rs 6,000 (all on an annual basis).

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