The National Economic Council (NEC) meeting held under the chairmanship of Prime Minister Zafarullah Khan Jamali on 15th March, 2004 reviewed the performance of the economy and took certain decisions of vital importance.
Manufacturing growth was stated to be robust and agricultural sector was doing quite well due to 29 percent higher water availability and increase of 15 percent in fertiliser supply.
As a result, GDP growth was now expected to be about 6 percent as against the original target of 5.3 percent.
The NEC meeting was also informed by the Finance Minister that per capita income was likely to rise to $600 by the close of 2004 and Pakistan would then be categorised in the group of middle-income countries. Per capita parity price would touch $2000 per annum by the end of the current year.
Other fundamentals of the economy were also found to be strong. Revenue collections during the first eight months were 15.3 percent higher than in the comparable period last year.
Money supply during July-February, 2004 had registered a growth rate of 11 percent as against 10.7 percent last year, with private sector credit increasing by a huge amount of Rs 225 billion compared to Rs 77 billion in the corresponding period of last year.
The Prime Minister was also briefed about export growth, imports, remittances and stock market performance.
Utilisation of funds allocated for PSDP was rather poor, the government having spent only Rs 49.6 billion (31 percent) of the Rs 70.4 billion (44 percent) released from total PSDP allocation of Rs 160 billion.
On the policy side, the NEC authorised the provinces to approve the wholly funded projects up-to one billion rupees without federal guarantee and extended the allocation for development projects to three years to avoid last minute rush for utilisation of funds; in other words, these would not lapse for three years and allocations would automatically roll over to the next year.
The Prime Minister also asked the provinces to finalise the sixth National Finance Commission (NFC) award with consensus on a "give and take basis".
So far as the federal government was concerned, it was prepared to be flexible in raising provincial share in the divisible pool in the 45 percent plus region.
Performance of the economy as measured by the major macro-economic indicators and indicated by the Finance Minister is undoubtedly quite satisfactory, but some of the gains we believe have been unnecessarily blown up and the emerging weaknesses were not properly identified in the NEC meeting.
For instance, per capita income is set to touch the mark of $600 by the end of the year, but it was largely attributable to the appreciation of the rupee in the recent past and huge inflows of foreign remittances which pushed up the GNP.
The sad fact is that sharp increase in foreign remittances has not resulted in a major increase in the productive activity in the economy but was channelled into speculative activities by the recipients due to lack of conducive investment environment in the economy. Per capita parity of $2000 computed by the economists of the government, would look like a mirage to an ordinary person.
The only comment which could be made on this projection is that our statistics may be underestimated in this respect to a certain degree but our policy makers should closely watch on their next visit the quality of life enjoyed by people living in countries with per capita income of $2000 and then compare it with the conditions prevailing in Pakistan in order to reach the right conclusion.
Further, the NEC meeting was perhaps not informed or probably did not take notice of the widening trade deficit which was much larger during the first eight months than the target for the year as a whole and comparable period of last year, nor was it told of inflation fears and the stagnation in investment. Both private sector investment and public sector development spending need to be given a big boost.
Foreign direct investment which was projected to be around one billion dollars during 2003-04 is likely to be lower than that. All of this would have negative implications on long-term basis.
The NEC meeting also appears to have not given any consideration to the need for lowering the utility prices for investment acceleration, job creation and providing a measure of relief to the common man.
In our view, instead of highlighting the achievements which in any case now appear to be tediously repetitive, the meeting should have better concentrated on weaker areas and at the same time ensured that benefits of macro-economic gains should be reaching the ordinary people.
The decision to roll over the development funds upto three years appears to be timely and would facilitate the smooth completion of various projects provided the implementing authorities do not become complacent and non-lapsing of development funds does not give an incentive to the finance ministry to hold back releases to control the fiscal deficit.
The empowerment of provinces to approve development schemes costing upto one billion rupees would increase provinces' independence in fixing development priorities and is on line with the spirit of autonomy to the provinces.
However, the most important and contentious issue requiring quick resolution is the National Finance Commission (NFC) award.
Various statements made by the provincial representatives after the NEC meeting indicate that, contrary to earlier expectations, consensus has yet to be reached on certain important points.
The position of every province is well known by now and the next meeting has been called on 20th March to "evolve a consensus" so that final decisions could be incorporated in the next budget.
Keeping the importance of the issue and its likely implications in view, we would also join the Prime Minister in exhorting all concerned to soften their respective stands in order to avoid distrust and to strengthen harmony between various communities in the country.