Pakistan Enjoys Explosive Economic Growth
Michael Kitchen
Islamabad
23 Sep 2003, 10:39 UTC
Pakistan is in the midst of an explosion in economic growth. Despite the recent slump in the global economy, Pakistanis have managed to boost exports while keeping their inflation rate down and their currency stable. The country’s challenge now is to transform this economic expansion into real gains for Pakistan’s poor. Pakistan is making leaps in almost every economic statistic. Economic growth has more than doubled from a struggling two percent two years ago to above five percent now. A two-year drought that hit the agricultural sector - the centerpiece of the Pakistani economy - is finally over, and cotton, rice and wheat production is booming. As a result, the Asian Development Bank reported last month that exports are growing faster than at any time since the 1980s, with Pakistani knit-wear, cotton cloth and basmati rice shipping out across the globe. The financial sector also is experiencing flush times. If you had invested in every company on the main index at the Karachi Stock Exchange in June 2002, you would have seen a return of 150 percent by now. And although the stock market has seen some losses in the past few weeks, analysts say its upward trend is likely to continue. Economists such as Henri Ghesquiere, with the International Monetary Fund in Pakistan, say that if the economic pattern continues over the next decade, the country could become a new “Asian Tiger.” “Pakistan would be slowly following the path of some of the more successful East Asian countries, which have grown fast on the basis of export performance,” he said. “And gradually, then, Pakistan would be moving in the direction of countries like Indonesia, Malaysia, for example, then eventually Taiwan, and ultimately - but that would take some time - South Korea.” The forces behind the new prosperity include a crackdown on tax collections and official corruption, and a strong fiscal policy that has stabilized the rupee and reined in inflation. The war on terror also is helping. Islamabad has allied itself with the United States in fighting terrorists, including Islamic extremists in Afghanistan and Pakistan. To cut terrorist finances flowing into the country, Pakistan has clamped down on under the table money transfers. This drove Pakistanis to make such transfers through legitimate banks. That, in turn, more than doubled the country’s foreign exchange reserves in a year. Pakistan’s war on terror has also brought it financial support from the West in the form of foreign debt relief. But the picture is by no means perfect. Economists point out that despite the rising prosperity, many Pakistanis still lead a life of poverty and hunger. The Asian Development Bank (ADB) reported last month that the number of poor in Pakistan, the world’s sixth most populous nation, continues to grow. According to the most recent data, about one third of the country lives below the poverty line, defined by the government as those unable to afford a diet of 2,350 calories a day. The politicians are certainly aware of the problem, and the same ADB report notes that spending on poverty reduction rose by a third during the last fiscal year. Economists such as Iffat Zehra Mankani of Pakistan’s Capital One Equities, say such efforts are encouraging. But she added that poverty-reduction programs must focus on improving the lot of the nation’s farmers, who serve as the linchpin for the economy. “The whole service sector, as well as the manufacturing sector, is dependent on agriculture,” said Ms. Mankani. “Then if there’s a good crop, that bodes well for the manufacturing sector, especially related to textile industries.” She said that if farmers could access better technology to increase crop yields and improve profits, it would cascade across the entire economy, creating jobs and, as a result, raising wages.
Pakistan’s poor have even more reason for hope, because the United States plans to give its anti-terror ally a five-year, $3 billion aid package. While half of the money is for military spending, U.S. Treasury Secretary John Snow says the rest should be used to help the poor. “We’ve encouraged the government of Pakistan to set some priorities with respect to the use of these funds that will tie to projects and actions and activities that reduce poverty,” said Mr. Snow. Economic trouble could still resurface if tensions with rival India send global investors fleeing, or if Pakistan, heavily dependent on foreign oil, sees crude prices spike. But between the homegrown economic turn-around and the infusion of aid from abroad, economists say Pakistan seems to be on the way from economic basket case to economic prodigy.
