Countries, like individuals, at some stage of their existence, get opportunities, which, if properly exploited, change their fortunes for the better. Their wastage, on the other hand, is tragic because an opportunity once lost hardly recurs. Though not finally and fully confirmed, at least as yet, we seem to be heading towards a situation of failing to cash in on the recent promise extended by providence. Before 9/11, the country was in a mire, faced with a very difficult economic environment characterised by very low growth rates, dwindling foreign exchange reserves, etc, and rated almost a pariah state, heavily sanctioned and with whom no other country was keen to forge a close relationship.
Then the unfortunate incident of the collapse of Trade Towers better known as 9/11 happened, and President Musharraf took certain decisions that were not only difficult but required courage and sagacity. As a result, the expatriate Pakistanis who perceived or found their assets unsafe abroad and the international community and donor agencies poured funds into the country through various ways, the former for dividing the risk and the latter to rescue the economy.
These factors together with some bold reform measures in accordance with the wishes of the IMF and the World Bank have yielded dividends in terms of improved macro-economic indicators. GDP growth rate has gone up, budget deficit is down, foreign exchange reserves are at a comfortable level, the rupee is stable, credit rating of the country has improved and there is no immediate threat to its solvency.
Economic managers of the country continue to claim the credit for these achievements loudly and so frequently that ordinary people are now getting tired and almost pay no heed. They know that the situation would have been vastly different if the President had not taken the right decision at the right time.
Although one could derive some satisfaction from these positive developments, there can be no escape from the conclusion that a most favourable turn of events could have been harnessed in a better way to secure for more momentous results. As the data would show, foreign remittances improved tremendously for well-known reasons, leading to a substantial surplus in current account balance and swelling of foreign exchange reserves.
The liquidity of the banking sector got a big boost and its inflationary impact was also partly neutralised by the sterilisation policy of the State Bank. The sharp improvement in the credit creating capacity of the financial sector and the vast increase in rupee resources at the disposal of households should have been channelized into really productive sectors of the economy for sustainable development and generation of employment.
In other words, basic industries should have been planned, factories built and modernised, and necessary infrastructure developed to strengthen the overall potential of the economy to face the future uncertainties. Instead, these newly found resources were seen to have largely gone into speculative uses or been frittered away on consumption.
The stock market is setting new records almost every week and land/housing prices have reached unbelievable levels. The demand for cars, fuelled by financing, is so heavy that hefty premium has to be paid for prompt delivery. The consumer demand is so strong that inflation is accelerating in the country despite higher growth rates and the current account is again going to register a substantial deficit this year due to sharply rising imports.
The most unfortunate aspect is that while a small section of the population is enjoying a high level of consumption and getting richer by the day, ordinary wage-earners find it hard to make both ends meet because of rising prices and lack of opportunities to improve their incomes.
They find it difficult to rent ordinary accommodation and cannot dream of buying a house even in poor localities. The situation of people living below the poverty line is even worse. An overwhelming proportion of the population has nothing to gain from the rising shares market or better credit rating of the country.
Similar is the case with the flow of foreign direct investment (FDI). Our economic policy makers are trying to attract FDI by crying hoarsely that the fundamentals of the economy are now sound and all kinds of incentives are available, but their efforts are not yielding the desired results.
The level of FDI remains poor. Whatever is received is by way of privatisation proceeds or largely utilised for consumption oriented projects, cellular telephony being the odd exception. Obviously, a large part of such type of FDI is meant only for change in the ownership of existing assets and does not add to the productive or employment generating capacity of the economy.
All of this cannot be ascribed to the poor understanding of investors, both domestic and foreign, and the distorted preferences of those receiving large amounts of remittances or availing of bank credit which has increased several fold during the recent past. Obviously, there are certain factors dictating their choice.
Infrastructure in the country is very poor and not dependable. Electricity, water and port charges are among the highest in the region. The education and skill level in the country is very low. There are too many public holidays, which hamper production and delay exports. The labour laws are antiquated and not helpful for higher productivity.
Corruption, poor governance and absence of an enforceable legal framework and the rule of law are endemic problems. Nobody feels safe in the big cities despite the presence of armed law enforcers at most of the places. One wonders how the foreign businessmen and investors must be feeling when the roads between the Expo-Centre and their hotels in Karachi are closed for their movement for security reasons.
There is also the risk of political instability. Questions are being asked about the mode of transfer of power if the individual on whose shoulders this edifice stands is no longer there. Of course, there are no such concerns in most of the other countries vying for foreign investment.
The policy framework is also not conducive to optimal utilisation of investible resources. Financial institutions, instead of trying hard to channelize their resources into productive uses, are encouraging their clients or making investments themselves in the stock exchange to prop up their balance sheets. Purchase of houses is encouraged through innovative schemes and financing of car loans is a preferred option to advance credit.
Consumer loans have thus gone up by over Rs 22 billion during the current year. Fiscal policy of the government is also not geared to capture even a part of windfall profits originating from speculative activities.
We strongly feel that the opportunity of a life-time to make a difference in our economic prospects is gradually slipping away. There is a dire need to harness the available resources in productive uses for sustainable development and to reduce the country's dependence on outside sources of finance in the long run. Such a strategy would also generate more employment and alleviate poverty.
We have only highlighted certain weaknesses which come in the way of implementing the strategy suggested here, but the list in no way is complete. The main purpose is to urge the authorities to analyse the whole situation carefully and do something really imaginative to make a better use of the available resources before it is too late.
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