Economy on the mend

Economy on the mend

The Dawn
Asia News Network
Karachi

In its report "Pakistan Economic Update, July 2002-March
2003", the Asian Development Bank has projected an optimistic
outlook for Pakistan's economy in the medium term. The estimated
growth rate of over 4.5 percent for 2002-2003 is a significant
improvement on the 3.6 percent of gross domestic product growth
achieved in 2001-2002 and more so compared to the previous year.

Improvement in agriculture, industry, exports, and imports,
and a significant increase in investment, savings and foreign
capital inflows have contributed to the current growth rate.

The ADB report attributes this improvement -- in the face of
external shocks during fiscal 2002 following Sept. 11, tensions
on the border with India, continuing drought, slow growth in the
world economy and upheavals of the Iraq war -- to the sustained
stability of macroeconomic indicators, improvement in the
external account and the government's firmness in maintaining the
momentum of the on-going economic reforms.

According to the report, both demand and supply factors are
expected to speed up domestic economic activity. Increased
availability of water should boost agriculture and hydropower
generation. The textile industry is also better placed for
increased production after heavy investment in the past two
years.

Demand factors include larger remittances expected to reach
US$3.5 billion during the current year and the consequent
increase in construction activity, as well as aggressive
marketing of consumer credit by financial institutions. Increased
activity, particularly higher growth in manufacturing, together
with a reduction in import tariffs and a strong local currency,
is likely to ensure growth in imports.

Foreign domestic investment should pick up provided the
political situation becomes stable. The external debt stock is
expected to be maintained at about $32 billion over the medium
term, with further improvement in the debt-profile, as expensive,
short-term debt is replaced by long-term concessional borrowings.
External debt servicing then fell to some 20 percent of foreign
exchange earnings by 2004.

However the projected increase in the rate of unemployment to
more than nine percent from around eight percent in 2000. Also,
inflation is likely to rise to five percent in 2004.

Thus it is more than likely that more people would fall below
the poverty line by the time the current three-year Poverty
Reduction and Growth Facility (PRGF) program of the IMF amounting
to over a $100 comes to an end in 2004. Of course, there is
hardly anything one can do to keep the rate of inflation from
galloping at a time when economic activity is gaining momentum.

But the government could do a lot more to save the poorer
sections from absolute destitution without upsetting its reform
agenda. If it takes a good number of employment generating
physical and social infrastructure projects, it will not only
expand the absorption capacity of the economy but also speed up
reform. Meanwhile, it could also make plans to distribute the
resultant hardships of the reforms equitably. As of now the
rigors of reforms have mainly been borne by the poorer sections.