MUSHARAF & PROSPEROUS PAKISTAN

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Vision for a Prosperous Pakistan
An article by President Pervez Musharraf published in Blue Chip
June 2004
My Vision for a Prosperous Pakistan. It is an undeniable and well-established fact the decade of the 1990s was disastrous for Pakistan. While many developing nations made substantial progress, Pakistan lurched from one economic crisis to another, mainly of its own making. Weak macroeconomic management, lack of commitment and courage to undertake difficult structural reforms, a personalized and politicized state of decision-making and alarming levels of corruption were typical of the quality of governance. Appalling economic decisions hyped on populist slogans were symbolic of the freewheeling decision-making that led to the incurring of huge debt through corruption-ridden unproductive public expenditure. Commercial banks and other financial institutions became instruments of political patronage and profit for favored cronies. The gross mismanagement of public sector enterprises like the Water & Power Development Authority, the Karachi. Electric Supply Corporation, the railways, Pakistan Steel Mills, Pakistan National Shipping Corporation and Pakistan International Airlines added further to the problems. The freezing of foreign currency accounts shattered the confidence of investors and expatriate Pakistanis in the financial management of the country.

The persistence of large fiscal and current account deficits and the associated build-up of public and external debt emerged as the major source of macroeconomic imbalances in the 1990s. Failures in enhancing revenues consistent with growing expenditure requirements, stagnation in exports and the decline in other foreign exchange inflows exacerbated these imbalances and vitiated a stable macroeconomic environment. On the political side, successive governments during this decade pursued twin agendas of blatant self-aggrandizement and ruthless revenge. In the process, they undermined certain basic imperatives of the federal polity, deeply politicized the civil services and dragged the hierarchy of the armed forces into playing the role of referee in the struggle for political power. In the comity of nations, Pakistan faced isolation and remained on the defensive on a number of issues, which were vital to its international standing.

Such a state of affairs had a far-reaching impact on the country’s economic well-being. There was despondency among all, as many began to talk of Pakistan as a failed state. Indeed, Pakistan witnessed economic growth slowing, investment rates decelerating and the debt burden reaching alarming proportions. The massive cost of debt servicing rendered fiscal policy instruments ineffective and the country’s physical and human infrastructure showed signs of buckling under the combination of fiscal crunch, rising poverty and poor governance. A weak and fragile economy became the cause as well as the effect of the poor law and order situation in the country.

It was in the backdrop of this state of affairs that my government took charge of the affairs of state on October 12, 1999.It was established that a mere return to civilian government through quickly held elections would not address the malaise that had been virtually institutionalized by the mutually inimical and antagonistic political practices that were rampant throughout the country. Many international forums and governments saw it as yet another takeover by an intrusive military and called for a return to democracy at the very earliest. However, national responsibility demanded that a comprehensive and sincere effort be launched to rectify this state of affairs and propagate sustainable democracy for the good of the people and the state of Pakistan. This was indeed a Herculean task but greater was our resolve to accomplish it. On the economic front it was realized that if left uncorrected, the worsening macroeconomic imbalances would lead to a higher accumulation of debt, a further loss of sovereignty and an uncertain environment for investment, thus jeopardizing the prospects of sustainable higher economic growth and an improvement in the lives of the masses.

Economic Policy Objectives
Economic Policy Objectives. While accepting this challenge, my government set forward four major policy objectives on the economic front. First, to stabilize the country’s debt situation with a view to restoring macroeconomic stability. Second, to revive economic growth and restore investor confidence. Third, to arrest the rising trends in poverty and, fourth, to improve governance. These four policy objectives were all interconnected. For example, a rising debt burden, which consumed almost two-thirds of government revenues on account of debt-servicing forced public sector development programmes to decline over the years. Being complementary in nature, private sector investment also declined. This decline in overall investment caused economic growth to decelerate with a corresponding rise in unemployment and poverty. Poor governance also contributed to the slowing of Pakistan’s economic growth and the rising levels of unemployment and poverty.

Options Available
Given the nature of the challenges, we had two options. The first was to implement the four objectives simultaneously, that is, stabilize the debt situation, promote investment and growth, reduce poverty and improve governance.

The second option was to prioritize these objectives and address the core issues first. After extensive deliberations, my economic team opted for the second option for the following reasons: first, Pakistan did not have the capacity to address all these issues simultaneously. Second, to address all the issues simultaneously we had to use instruments whose outcomes were conflicting in nature. For example, the root cause of the rising debt burden had been the persistence of large fiscal and current account deficits causing rapid accumulation of debt and consequent deterioration of the macroeconomic environment. In such an unstable environment one could not expect the private sector to come forward and increase investment. A stable macroeconomic environment was an absolute pre-requisite for promoting private sector investment and spurring economic growth. Stabilizing the country’s debt situation was, therefore, considered to be the core issue and was addressed first with a lot of vigor and ingenuity.



Where Are We Now?
The fruits of the policies and reform programmes that were introduced by my government in early 2000 and continued by the democratically elected government have started yielding dividends. Despite a series of domestic and external shocks of an unprecedented nature, Pakistan’s economy has made commendable progress over the last four-and-a-half years. A broad-based economic recovery has already gathered momentum, macroeconomic stability has achieved and the external balance of payments is much stronger today than ever before.

Pakistan’s economy is now healthier and poised for a strong growth of over 6% this year; economic policies are consistent and transparent; the confidence of the private sector is restored, which is reflected in the sharp pick-up in bank credit to the private sector and a high double-digit growth in industrial production; the stock market is buoyant and expatriate Pakistanis are bringing their capital back; the current account balance has been in surplus for three years in a row; foreign exchange reserves are over $12.5 billion; the rupee is stable; the interest rate environment has never been so investment friendly; the budget deficit has been lowered and the country’s debt burden has declined sharply; exports, imports and tax collection are growing at double-digit levels; and Pakistan has paid $1.17 billion high cost external debt to the Asian Development Bank ahead of time and intends to pre-pay another $1.0 billion before end-December 2004. Pakistan has been upgraded from ‘Selective Default’ to ‘B’ by the international rating agencies.

Transferring Macroeconomic Gains to the People
No efforts to revive the economy will be complete unless the macroeconomic gains are transferred to the masses in terms of improved standards of living. The best way to improve the living conditions of the people is to enhance their earning, provide them with gainful employment, scaling up investment in human capital and maximizing the impact of existing public spending on education and health. Central to achieving this objective is the promotion of stronger economic growth.



Addressing the issue of educated unemployed youth in the country in general and the urban areas in particular has always remained central to my thought. Accordingly, Information Technology & Telecommunication was identified as one of the major drivers of growth by my government because of its enormous potential to create jobs for the urban segment of society. This sector has witnessed unprecedented growth during the last four-and-a-half years and has emerged as a major source of foreign investment — thanks to major reforms introduced in this sector. IT & Telecommunication is not only bridging the digital divide across the nations but within the country as well. It is playing an important role in the country’s socio-economic development and improving the productivity of our economy. The extraordinary growth in the IT and Telecom sector has created enormous employment opportunities, directly and indirectly, for educated unemployed youth in a wide range of areas like call centers, telecom engineering, telecom salespersons, customer services, finance and accounting etc. This is one of the fastest growing sectors of the economy and the pace is likely to accelerate even further in years to come, hence more job creation will be taking place.


Geo-economics
The twenty-first century is an era of geo-economics. By virtue of its pivotal geographical location, Pakistan can act as a bridge of economic progress and the sharing of the vast energy potential between Central and South Asia. Landlocked Central Asia has the shortest access to the Arabian Sea through Pakistan. The under construction Gwadar Port, with road and rail infrastructure extending to Afghanistan, provides connectivity between Central Asia and Pakistan through Afghanistan for mutual gains.



My Vision
Pakistan has lived through a difficult and testing period. Wide-ranging structural reforms, prudent macroeconomic policies, financial discipline, and consistency and continuity in policies, not seen before, have transformed Pakistan — an economic ‘laggard’ in the 1990s — into a stable and resurgent economy in 2004. This relatively stronger economy has generated sufficient resources enabling the government to undertake balanced development programmes in all the provinces of Pakistan, thus cementing provincial harmony. It has also enabled us to regain our lost status in the comity of nations.



It is against this backdrop that I visualize Pakistan as a strong, high-performing economy, growing at an average rate of 7 to 8 percent over the next decade. I would like to see the continuation of the present stable macroeconomic environment and an educated and healthier Pakistani contributing effectively to achieving higher economic growth. I would like to see the benefits of macroeconomic gains passed on to the common man. Lastly, I would like to see Pakistan living with honour, dignity and respect amongst the nations of the world.

How can my vision be realized? The stage is now set for growth to accelerate from over 6% this year to 8% in the next three-to-four years. The sectors which will play a major part in this vision of growth are agriculture, small and medium enterprises, housing and construction, oil and gas, information technology and telecommunication. Among these, at least three are expected to generate pro-poor growth. This does not mean that we will ignore other sectors of the economy. In fact, a more diversified economy with a vibrant manufacturing and service sector will offer the best chance of achieving higher economic growth on a sustained basis. With the country’s population growing at less than 2% per annum over the next decade, real per capita income will be growing at an average rate of 5.5% to 6% per annum. This is the growth in per capita income which will be required to substantially reduce poverty and unemployment in the country, thereby improving the lives of the masses. Pakistan can sustain this growth momentum provided consistency, continuity and transparency in economic policy making is maintained. Financial discipline will be vital in maintaining a stable macroeconomic environment essential for higher economic growth.


Agriculture and the energy sectors will remain the catalysts of our poverty alleviation and economic growth. Agriculture has to be boosted, cheap electric generation capacity has to be enhanced and energy cost has to be reduced. All this is dependant on the construction of a large dam which will give us the additional water for the new canals we are making, and will also generate a substantial quantity of the cheapest electricity — hydro electricity. It is imperative that we gradually change our electric generation profile from expensive oil dependence to water, coal and gas generation. Such a change in electricity generation ratios will allow us the essential reduction in electricity prices thus contributing to poverty alleviation as well as reduction in industrial production costs. The decision on priorities of construction of large dams has to be taken immediately and construction of at least one dam completed within the coming ten years.

Few policies have promoted socio-economic development as powerfully as effective investment in human resources. No nation can effectively progress without a strong human capital base. Investment in this area will be as essential as sound macroeconomic policies in achieving the desired economic boom. Education is central to overall human resource development. While basic innumeracy, higher education, especially at the tertiary level, involves specialization in fields of study and occupation relevant to developing technological capability. Past neglect of human resource development has created a large social gap in Pakistan; we have, therefore, a lot of catching up to do. The education strategy evolved caters for enhancing our literacy levels, improving the quality of our primary and secondary education and also giving a major boost to the quality of our higher education. This holistic approach needs to be pursued vigorously through enhanced funding for concrete results.
We Can Do It
Pakistan has lived through a difficult and testing period in the not-too-distant past. Its economy was fragile, the balance of payments was highly vulnerable to external shocks, the country’s debt burden had reached alarming proportions, financial indiscipline was the order of the day and the country’s foreign exchange reserves were at dangerously low levels. After four-and-a-half years of hard work, Pakistan’s economy is now resurgent and the balance of payments has never been as comfortable. Notwithstanding the impressive progress made so far, the government must not be complacent, as the country has not yet realized its true potential. The 150 million people of Pakistan have enormous potential to excel in many areas. Their intelligence, their dynamism and their ability to learn are second to none. What is required is the unlocking of the creative energies of the people.

My vision of a strong, vibrant, stable and moderate Pakistan playing an effective role in the world is based on my faith in the people of Pakistan.