Speaking at the Pakistan Development Forum (PDF) 2007, Prime Minister Shaukat Aziz and the representatives of donor agencies presented almost contrasting views of the economy. While the Prime Minister emphasized mainly positive developments, the donors highlighted the challenges confronting the economy.
Shaukat Aziz said that he expects more than seven percent growth rate during the current fiscal year while per capita income would increase from $847 last year to $950 this year and cross the $1000 mark next year. Foreign direct investment which had already risen to $5.6 billion in the first nine months of 2006-07 would exceed the target of six billion dollars. Pakistan's strength was in its 100 million people aged less than 25 years who would be imparted technical and vocational training at the rate of one million per annum.
The Prime Minister also referred to a Livestock Census 2006 which showed that the number of cattle registered an annual increase of 4.5 percent, which would provide additional avenues for employment. As is usual at the PDF every year, the Prime Minister sought support of development partners to sustain high growth rates and reduce poverty.
The World Bank and other international donors, without disagreeing with the above observations, termed poverty, high inflation and widening trade and current account deficits as Pakistan's major challenges. They suggested to the policy makers to adopt a pro-poor approach to ensure that all segments of society benefit equally from the economic prosperity. World Bank's Vice President for South Asia agreed that Pakistan was making progress but warned that extreme inequality could lead to polarisation and migration. The rural poor in Pakistan were facing worst kind of poverty and the government should take them on board by passing on the benefits of economic development.
ADB's Vice President said that Pakistan was facing serious challenges such as high inflation and low investment in key areas such as health and education. IDB President Ahmed Mohammad Ali also appreciated Pakistan's economic performance and recounted the challenges the country was confronted with. He advised Pakistan to do more for providing benefits of its economic turnaround to the poor and downtrodden segments of society.
There could probably be no argument about the observations made at the PDF by the Prime Minister and other speakers. It is true that the country has achieved a reasonable rate of growth during the last few years and foreign investment has risen sharply, but the challenges now confronting the economy are indeed menacing and need immediate attention of the policy makers.
The rate of growth and other positive factors as emphasized by the Prime Minister were, nonetheless, understandable and expected. The meeting of the PDF is an annual pre-budget feature where top government functionaries usually try to make a pitch to attract foreign assistance from the donors in the subsequent year, and an encouraging picture of the economy leaves a good impression on the donors who don't want to see their resources to be under-utilised. Seen against this background, the position taken by the Prime Minister at the PDF would appear to be quite rational, but we would urge him to also listen to the view-point of the donors more carefully this time.
Over the last seven years or so, some of the major structural macro-economic imbalances have, of course, been overcome and the economy has seen a turnaround. The credit for these achievements goes to the present dispensation, but this is definitely the time for introspection and the advice of the donors seems to be quite sincere.
In order to ascertain the absorption capacity of an economy, donor agencies work out various scenarios, based on different assumptions. As 2007-08 is expected to be an election year, their concerns about fiscal laxity to accommodate populist measures and delaying painful structural adjustments are understandable. Getting off-track will have consequences on exchange and interest rates. Let us not lose the gains that the Musharraf-Shaukat combine get duly credit for.
Absolute poverty and the widening gulf between the rich and the poor is a fact of life in Pakistan. The problem has become multidimensional and serious because the gap between the rural and urban population and between various regions is also increasing. In such a situation, the heart-burning of the poor could sometimes reach a critical stage and tear apart the social fabric, threatening the very survival of the economy.
The growth and other positive figures dished out by the authorities so frequently are often meaningless and ignored by the people who find it difficult to make both ends meet. In our view, it is time for the government to change its priorities and put more emphasis on employment creation and poverty reduction as pointed out by the representatives of multilateral financial institutions, rather than thinking and propagating about variables which, though important, are less relevant for ordinary people of the country.
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