^large budget deficits, large trade imbalances, a focus on service sector while ignoring power and education..are just a few of the points ..the following writer no relation to Faisal says much the same
Macro blues
By DR FAISAL BARI October 19, 2008
Macroeconomic issues have, in a relatively short period, become quite binding for the economy: to the extent that today people are talking about Pakistan defaulting on its international obligations, its banking system becoming unstable, while there have been mini runs on some of the banks and people have tried to move out of Pakistani rupee and into dollars, at the same time trying to get the dollars out of lockers and money out of the banking system at large. The stock market continues to be in doldrums. So, the entire situation looks pretty bleak, unstable and quite unpredictable.
It is interesting to note that it was only a year or less ago that the last government had been celebrating the many years of high growth that had been achieved in Pakistan. They had been declaring that Pakistan’s foreign debt, as a percentage of GDP, had come down substantially, local demand and production and hence growth were healthy and due to significant inflows, Pakistan was, according to them, doing quite well. More than that, they also claimed that since our ‘fundamentals’ had become much more sound and since the economic growth had become more robust, Pakistan was on a sustainable growth path and was on the verge of ‘takeoff’ and so on.
Clearly the speed with which the entire growth structure has unravelled and the way Pakistani economy has been brought on to its knees gives a lie to the claim that the growth was robust and the fundamentals were sound. But of course, there had been growth in those years. So, why did the growth not become robust and why did the fundamentals not get better? These actually might be the key questions for researchers to answer if they want to address the issue of sustainability of growth in Pakistan.
The answers to these questions will, most likely, come from a variety of areas. Though there had been growth it was not broad based, it was not based on sectors (agriculture, livestock, textile) where we seem to have lots of potential and lots of competitive advantages, it was based on high domestic consumer demand and with a hefty component for imported consumer items, it was not export led, and it did not have a high employment elasticity. Furthermore, though the growth was accompanied by significant foreign direct investment (FDI) inflows, they were mostly restricted to consumer related industries and for catering to domestic demand rather than for creating exports from Pakistan.
Another main failing of the last government occurred in a different area: at the time when the government had fiscal space due to increased remittance flows, FDI as well as increased foreign aid flows, while our loans had been rescheduled to give us more breathing space, the government failed to address the issue of institutional reforms almost completely. Banking was probably the only sector that had some serious reforms implemented. But other sectors and areas, equally important if not more so, were more or less ignored. There were no reforms, to speak of, in areas like judiciary, property rights regime, contract enforcement, police, regulatory environment, government administration and so on. And where reforms were introduced, like in local government, they were not sufficiently entrenched in the larger set-up to allow for smoother functioning