Not too bad after all on economic fronts for year 2008-09

[LahoreEstate]

The present government has been in power for almost 16 months and it is time to review its economic performance. The perception within Pakistan is that the government has completely failed to provide any relief to the general masses.

There is a level of frustration that is visible whether you are watching television or reading the newspaper. Already a doomsday scenario is being presented by everyone.In Pakistan, this happens to every democratic government at this stage and then there is pressure to look for alternatives. This is a critical time and we must be patient and at the same time continue to criticise the government whenever required.

What are the ground realities? Is it true that the economic performance of the present ruling elite is as bad as perceived, or are the numbers suggesting otherwise? In order to get the answer it is extremely important to assess the data and then decide whether the perception is even close to the reality.

First we need to understand the environment and the conditions prevalent since March 2008 when the PPP came into power. Although democracy was restored following the elections of February 2008, there were serious contradictions within the system at the time. Gen Musharraf was still the president of Pakistan although Pakistanis in large numbers had voted against his policies.

It was clear then that in order for the government to establish its writ and move on to consolidate power, Gen Musharraf had to go and leave the presidency to be replaced by the nominee of the people’s representative. That happened in August 2008 and Mr Zardari was elected through the constitutional process in September 2008 as the president.

In addition to the issue of the presidency, Pakistan was also in the grip of a serious judicial crisis as a result of the Nov 3, 2007 actions by Gen Musharraf. The present government inherited this crisis, although it can be blamed for delaying its resolution.

The government also inherited the worst possible law and order situation. Pakistan was already declared the most dangerous country in the world by most western analysts. The insurgencies in Swat and other areas were at their peak and the writ of the state was being openly challenged in the NWFP, Fata and Balochistan. This was mainly due to the previous government’s inefficient handling of the situation after 9/11.

On the economic front, due to lack of initiative by the previous government, no major energy project was initiated during the eight-year rule of Gen Musharraf. As a result, Pakistan was (and continues to be till this day) on the brink of a major electricity crisis.

We should also note that starting in the third quarter of 2008 the worst economic and financial crisis hit almost the entire world. Every country in the world was affected and Pakistan was no exception. Most countries including the most advanced are still in recession as a result of the economic crisis.

This was the environment in which the present government assumed power in March 2008. Any party would hate to take over the reins of government in circumstances as bad as they were then.

Now let’s look at the economic progress that has taken place since March of last year. Pakistan’s average GDP growth in the period 2002-2007 was 6.8 per cent which by any standards was reasonable and encouraging. However, during the same period, average GDP growth of the emerging Asian countries was 7.2 per cent which was higher than the growth achieved by Pakistan. In the fiscal year just concluded Pakistan’s GDP growth was a meagre two per cent.

Other Asian countries during the same period had negative growth. Malaysia had a negative GDP growth of -5.2 per cent, Singapore -8.6 per cent, South Korea -4.4 per cent, Taiwan -6.5 per cent and Thailand -4.5 per cent. This clearly shows that Pakistan did better than the average of the emerging Asian economies in the last fiscal year and it was when the present government was in power.

Pakistan’s capital markets sharply declined during 2008. The KSE-100 index came down from a high of 15,700 at the end of April to 5,800 at the end of 2008. However, we had seen similar or even more severe declines in the stock market of other countries including the most developed and developing countries. Almost all countries saw their capital markets crash during the second half of 2008. However, since the start of this year Pakistan’s capital market has increased by approximately 35 per cent which is reasonable.

As far as corporate profitability is concerned, during the worst global downturn in 80 years, Pakistan’s corporate profitability of listed companies declined by a mere three per cent in total in the third quarter of fiscal year 2008.

The signs of foreign portfolio investment are starting to come back. The last six weeks have shown a positive net inflow of foreign portfolio investment and this trend is expected to continue.

During the last fiscal year, the trade deficit and the current account deficit have also significantly improved as imports declined faster than exports. Workers’ remittances also reached a record level of $7.8bn during the last fiscal year.

Inflationary risks have also abated in recent months. Inflation has been consistently declining since November 2008. Government borrowings have also reduced which has helped reduce inflationary pressures. Among other positive signs, the fiscal position has improved and the currency’s rate of depreciation has also slowed.

In recent weeks, several macroeconomic indicators have shown that the economy has stabilised. Pakistan has averted an economic crisis at least in the short term. I am not suggesting that this government has done wonders as far as economic and financial management is concerned. There are serious issues of governance and one would expect that the current fiscal year will see improved performance.

However, we need to be careful while passing judgment on the economic performance of the present government and look at the facts rather than the perception. We need to understand that the present government came into power in the worst circumstances, both from the economic and political standpoint.

http://www.dawn.com/wps/wcm/connect/dawn...-all-hs-04