No Economic Crisis -Our economic managers deserve credit for turning around the economy

As Pakistanis we have to stress on portraying a positive image of our nation. In this article, eminent economist, Akbar Zaidi talks about what the media is saying and making us all believe that nothing is well with Pakistani economy. Apart from the overall improvement in the economy, I would also like to mention that in January 2010, Pakistan’s Euro 500 million bond matured successfully and the country repaid its debt ( This event passed away largely unnoticed. Off course, why would anyone in our yellow media notice it? It is something positive!

Another important point I’d like to stress upon is that being under the IMF program, manipulation of data is not possible. Manipulation of any data at this point is time is nothing less than hari-kiri, hence, whatever our friends in media say, we have to be careful in uttering words like fraud, manipulation etc while talking about figures that come out in public.

No Economic Crisis

Our economic managers deserve credit for turning around the economy

By: S. Akbar Zaidi

Dawn: 24th May, 2010

PAKISTANI citizens have been misled these last 10 months, and we economists have got all our sums and analysis completely wrong.

While as Pakistani citizens we were struggling to make ends meet and to barely survive under a huge range of crises, little did we know that things were not half as bad as we had all been experiencing every single day.

As economists, we examined economic data periodically released by the Government of Pakistan, the State Bank of Pakistan and a host of international institutions, and were trying to understand how unemployment and poverty rates could be stopped from rising further, convinced that a huge economic crisis was upon us which was going to have severe repercussions on the economy and on the lives of citizens.

The terms ‘recession’, financial crises’, and so on, had become part of the public discourse on the economy. Clearly, we were misinformed by our observed, felt and analytical reality. We have now just been informed that there is no economic crisis in Pakistan.

The growth rate for the economy approved by the National Accounts Committee for the current fiscal year is a very healthy 4.1 per cent, considerably higher than the original highly optimistic targets of three and 3.3 per cent which were released at various times throughout the year.

Compared to the original two per cent growth rate for the last fiscal year 2008-09, this is an impressive improvement of over 100 per cent. However, now with the growth rate revised downwards for 2008-09, to 1.1 per cent, the growth rate for the current fiscal year is almost four times as much, an extraordinary achievement by any definition. Pakistan’s economic managers deserve credit for really turning around the country’s economy.

Journalists and commentators have been accusing the government of ‘manipulating’ the GDP growth figures by creative accounting techniques. They have argued that while it is legitimate to revise GDP growth figures, or any sets of figures, a year or two later, what they contest is the scale of the revision.

Some have argued that a small adjustment, say from two per cent to 1.8 per cent or so, would not have been difficult to accept, but almost halving the growth rate does seem a bit incredulous, and suggests that this is a ‘political ploy’.

Importantly, some commentators have gone further and said that what is more incredulous is the basis on which the new growth figures have been revised. The 15 per cent growth shown in the construction sector, when the public sector development programme and government spending have been substantially reduced this fiscal year, has even been questioned by some government spokesmen who have, nevertheless, defended the new GDP growth figures.

If we were to make even a short list of economic factors that have taken place over the last 18 months or so with a probable impact on the economy, we would marvel further at the achievements and abilities of Pakistan’s economic managers.

Let us start with the obvious features which may have affected the economy. The inflation rate has been around 13 per cent for almost a year, and was 24 per cent about 18 months ago. Between May 2008 and May 2010, the rupee lost value by over 20 per cent. The cost of borrowing, the interest rate, was over 15 per cent in January last year and continues to be very high, while the tax-to-GDP ratio fell to its lowest levels of 8.8 per cent, one of the lowest in the world.

There is, of course, that ubiquitous problem of fighting militants and the war on terror which has cost much public revenue, and given the ‘law and order’ problem across Pakistan since 2008, foreign direct investment has fallen markedly. There was also that problem of a power shortage, with electricity not only far more expensive when it was available, but available for only a fraction of the day, especially in Punjab where a considerable part of Pakistan’s industrial base is located.

Lest one forget, world food prices and oil prices have been consistently high over the last 18 months. And, finally, we have to be reminded, that Pakistan is in a standby agreement with the International Monetary Fund. For those who don’t know what the purpose of the agreement was, it is best to reiterate the fact that this was a stabilisation or austerity programme, not a growth-oriented one.

This means, that the government would sacrifice growth and focus on giving the economy stability which, as evidence for the last 30 years from across the world shows, leads to growing unemployment and poverty. Pakistan’s managers seem to have bucked the trend completely.

Looking at all the factors which have affected Pakistan’s economy over the last two years — and I have listed just a small handful — suggests that there is no way Pakistan’s economy could have made such a miraculous turnaround. If so, as Pakistan’s economic managers claim that we have, we must be grateful to them for they have defied the very logic of economic management and they need to document their achievements so that others can learn.

Moreover, what this turnaround signifies, is that we really do not need the huge promised funds from the Friends of Democratic Pakistan, or from the US on account of the Kerry-Lugar Act, astronomical amounts of promised funds which never materialized. Not only can we survive without all such aid, we can actually thrive in its absence. But just imagine how much more we would have prospered had we received all that promised aid. ¦



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