Traditionally Pakistan has been a
high growth (averaging 5.6 percent) and low inflation country. With a population
growth rate exceeding three percent, per capita growth has been satisfactory
in the past, though social indicators have been poor. Moreover, this growth
was not accompanied by higher savings and investment levels. With the domestic
debt to GDP ratio growing and interest payments rising, Pakistan’s relatively
efficient capital output ratio is steadily eroding. There will be need
to mobilise huge amounts in the near future as capital becomes obsolete.
Pakistan’s aggregate growth rate has
been cradled by the agricultural sector. Thus, a healthy cotton crop results
in healthy GDP growth rates and vice versa. Foreign equity is a pre-requisite
for more capital, technology and markets. Furthermore, there is need
to focus on quality growth in terms of greater efficiency levels and diversification
in the industrial sector.
However, a society where the fruits
of development are not distributed amongst the majority, social tensions
are likely to heighten.
Pakistan finds itself in a debt trap,
owing to borrowing from the non-banking sector. Thus, domestic debt during
the fiscal year 1994-95 stood at Rs. 797 billion or 42.7 percent of GDP,
whereas domestic debt servicing amounted to Rs. 79 billion. The budget
deficit currently stands at Rs. 110 billion at a rate of interest of 12
percent, which indicates that an extra Rs. 13 billion will be incurred
under this head. This additional expenditure will further widen the fiscal
deficit.
Recently, the Lahore Chamber of Commerce
Forum Meeting made the following recommendations for improving the state
of the economy:
Agricultural and industrial diversification
coupled with tariff rationalisation is a pre-requisite for a growth target
of six percent.
There is a need for an effective exchange
rate through the managed float system to compensate for higher input costs.
As the current level of savings is
insufficient to sustain an investment rate of 19 percent, fiscal reform
is required. Domestic savings, both public and private, need to be encouraged.
Public sector savings can be encouraged by reducing the fiscal deficit
and improving the efficiency of public corporations. Household savings
should be encouraged through a positive rate of return and low inflation.
The government needs to maintain consistent
policies to promote stability within a secure macro-economic framework.
The government needs to provide civic
amenities to its citizens effectively including health, education, cleanliness
and satisfactory infrastructural services.
Justice and the rule of law must prevail
in all social, economic and political fields, where equitable taxation
and exemptions are available to every citizen and no special concessions
are granted on the basis of nepotism.
(Adapted from the Summary of LCCI Economic
Forum Meeting
held on 09 December 1995.)
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