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Pak economy meanders as the army completes 100 days in power

Haris Darvesh in Karachi

It is a mere ironical but historical coincidence that the ruling establishments in arch rivals India and Pakistan have completed 100 days in power at the same time. Pervaiz Musharraf came to power through bullet, Atal Bihari Vajpayee through the might of a ballot paper.

Musharraf took over Pakistan when the economy was under heavy foreign debt of $38 billion. Pakistan owes huge sums to foreign countries, the World Bank and the International Monetary Fund.

Musharraf and his companions were simply unaware that such a heavy debt and economic mess would be their unfortunate legacy left by the so-called democrats.

Before analysing the 100-day performance of the new regime, one has to keep in mind that this was an unplanned coup, rather an imposed one.

The new regime raised a hue and cry against the bank loan defaulters and promised to recover the money plundered by industrialists and businessmen. Out of Pakistani Rs 211 billion ($4 billion), only Rs 10 billion ($190 million) were recovered. Over 200 persons were put behind bars. It seems there is little possibility of recovery of the looted money.

The self-appointed Chief Executive stated in his very first address to the nation that the main aim of his government is to put the economy back on rails. After five days, he put forward a political and economic reform package to run the country. To revitalise Pakistan's economy, Musharraf called for a consistent policy, tax reforms, and increase in domestic savings and making state-run companies profitable.

The Pakistani 'government' took two unpopular decisions: increased the petroleum prices by ten per cent and imposed 15 per cent general sales tax on gas and electricity. This irked the common man and pushed more people below the poverty line. ''If prices of food items and utilities go up unchecked, the credibility of government and its reputation of being a saviour will also be at stake,'' Shahid Usman, a shopkeeper, said.

The Karachi Stock Exchange, Pakistan's premier bourse, recorded an unprecedented growth of 47 per cent since the coup. "The rise in the market was a result of positive moves by the government on a number of fronts, encouraging corporate performance, boost in exports and strong output in cotton and sugar production," Qasim Lakhani, senior investment analyst at ABN AMRO Securities in Karachi, said.

The revenue collection was 18 per cent higher in 100 days to Rs 85 billion rupees ($1.63 billion). While exports recorded an increase of 9.4 per cent to $1.486 billion, imports settled at $1.677 billion, showing a rise of 9.2 per cent, which proved that industrial activity in the country is reviving.

Standard & Poor's upgraded Pakistan credit rating after the government successfully managed to reschedule its loans under Paris Club worth $3.3 billion, London Club worth $960 million and Eurobonds valued at $610 million, Iftikhar Abbassi, investment analyst at Taurus Securities in Karachi, said.

He further said that the recent rise in petroleum prices will improve the revenue collection and fulfilled one of the conditions of the IMF to get $280 million loans from $1.56 billion credit line approved this year.

Moreover, the bumper cotton crop and increase in textile exports of 8 per cent to $2.683 billion in the six months ended December 31, 1999 will strengthen the foreign exchange reserves level, he said.

The economic policy, announced by the Chief Executive on December 15, 1999, appeared to be sound and reasonable but implementation is the final test, said observers, investors and general public. It would show the government's seriousness towards reforms, they added.

''So far it has created doubts in people's minds whether the government has the will to implement the key reforms, particularly, imposition of general sales tax across-the-board, agriculture tax and documenting the economy,'' Nadeem Naqvi, an economist and head of research at the International Asset Management Company, an advisor to Morgan Stanley Fund in Karachi, said.

The re-organisation of tax collecting authority, the Central Board of Revenue, has already begun and implementation of general sales tax on selected industries has boosted the tax revenues for the first half of the 1999-2000 which closed at Rs 157 billion ($3.019 billion) higher by Rs 26 billion ($500 million) compared to the same period a year ago.

But economic observers claimed that more could be achieved if the tax collection machinery is made more effective, professional and accountable. The revenue collection target for the whole financial year has been set at Rs 356 billion.

Several initiatives are underway under the umbrella of the economic advisory board and its sub-committees. Recommendations have been made but a clear-cut policy is yet to be seen on the economic front.

A leading analyst said that investors' confidence on which the Chief Executive has laid so much emphasis right from his first speech, could only be restored when concrete actions leading to tangible results become visible.

The government has taken some early positive steps like: the reduction in interest rates on national saving schemes, clearing the backlog of capital repatriation funds, and positive moves towards resolving the private power producers' disputes (the government and these companies have been locked up for last two years over high tariff charges). But they must be followed up by other policies within weeks rather than months, to enable the investors to develop a sense of confidence in government policies, experts said.

As far as overall economic growth is concerned, the cotton, wheat and rice crops would help GDP growth rate to reach 4 per cent in the current fiscal year, compared to 3.1 per cent attained last year. Inflation continues to remain lower at 6 per cent from 7.8 per cent a year ago due to below-trend domestic demand. This should help the government to focus on development spending without serious risk of crowding out private sector and also without excessively busting the budget deficit target agreed with the IMF under the debt-restructuring plan.

''The improved outlook has been connected to bumper cotton crop that was purely the efforts undertaken by the previous government. Furthermore, the under-performance in 1998 due to the nuclear detonations also played a major role in making the current indicators positive,'' Muhammed Suhail of IP Securities in Karachi said. ''Thus cent per cent credit cannot be extended to present government for the improved economic outlook,'' he said.

''Pakistan is credited with opening its market for foreign investment earlier than India, but has attracted much less because of inconsistency and poor implementation of policies at mid and grass root levels,'' Muhammed Sharif, an economist, said. ''The successive government failed to impose financial discipline and saving the market from parallel black economy,'' he said.

According to one estimate, the volume of this economy is 40 per cent of gross domestic product which at present is at $65 billion.

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