Posts Tagged ‘Economy’


Economic way forward for Pakistan: Shaukat Aziz, ex-Prime Minister of Pakistan

March 4, 2009

Prime Minister Shaukat Aziz in World Economic orumWhen I was asked to write a piece on the economic way forward, I hesitated at first because I felt that with a new government in place it is better that we leave the way forward to the new economic  managers, rather than play the role of back seat drivers and provide unsolicited advice. But the  mountain of criticism of the previous government policies from all sorts of arm chair critics, ranging from retired bureaucrats and economists of the cold war era, who still  believe in the supremacy of state management of the economy and for whom Venezuela and Bolivia are the new role models, to Islamists who  feel that the entire western global economic system is doomed and we need to chalk out a new paradigm – convinced me that perhaps the time  had come to analyze the past and set the record straight, assess the current situation and contribute to the debate on the way forward.

Now that we have the political parties of the nineties back in power it can be instructive to examine a few economic indicators of the nineties with the past eight years and draw inferences. Since the economic growth numbers have been challenged by the critics.  I will use numbers that are not subject to disagreement. So for example, if the GDP growth numbers are being challenged, than other growth indicators that the public can understand can show the reality. The official GDP growth from around US $ 65 billion in 1999-2000 to US$ 165 billion in 2007-08 (a factor of 2.5 times) is challenged as being fudged, but growth of credit to the private sector over the same time period from Rs 1 trillion to Rs 2.5 trillion, again a factor of 2.5 times, cannot be challenged. 

The data shows that while electricity consumption grew by 1300 Gwh per year in the decade of the nineties it grew by 3750 Gwh per year from 2000 to 2008 a factor of 2.8 times. Gas consumption grew by 20 billion cft per year in the nineties compared with 80 billion cft per year from 2000 to 2007 a factor of four times. The revenue collection by FBR increased from Rs 300 billion in 1999 to over one trillion in 2008. Foreign investment that averaged around $ 500 million per year in the nineties touched over $ 8 billion in 2008 alone. Remittances that were around one billion in 1999 have crossed six billion in 2008.

Development spending that was US$ 1.5 billion in 1999 touched $7.5 billion in 2007. Exports that were $7.5 billion in 1999 reached $18 billion in 2007.  Foreign exchange reserves that were around a billion dollars in 1999 reached over 16 billion in 2007. Stock market index that was around 1300 in 1999 touched its highest level of 15700 in April 2008 a factor of 12 times that placed the KSE as one of the best performing stock markets of the world. The exchange rate showed remarkable stability over the past eight years. Credit rating improved from selective default in 1999 to B+ and B1 by 2007.

Since the February elections, and the advent of the new government economic indicators have sharply deteriorated. The Currency has fallen by 25 percent against the Dollar, the stock market index has fallen by 6700 points from its peak in April leading to an asset value loss of 43 percent amounting to loss of market capitalization of around US $ 40 billion; the largest loss in the history of Pakistan. This loss of confidence in the economy of Pakistan has been unprecedented. We can trace the loss of confidence by the foreign investor by examining the spread on the US dollar global bonds that we issued in May 2007. These bonds were issued at the start of the lawyers movement and its associated turmoil. The bond was a huge success with over subscription; of seven times amounting to $ 3.5 billion while we were seeking only $500 million. The spread was 180 basis points above US government ten year securities. As the lawyers movement continued to gain strength in mid 2007, the spread on the bonds jumped to 300 basis points in July and 400 basis points by November when the emergency was imposed.

In December when BB was assassinated the spread jumped to 600 basis points. However, after the elections, the investor community welcomed the peaceful transition by pushing the spread down to 500 points. The stock market also reacted favorably and reached its highest point of 15700 in our history in April, 2008. Since then our chaotic politics and lack of focus on economic issues has led to the collapse of the stock market to 9000 points and the spread has jumped to almost a 1000 points. So what events produced these results, between April and now.

In the previous government, we had been highly successful in crafting a very positive brand image of Pakistan as one of the fastest growing emerging economies in Asia. After our exit from the IMF program and successful reforms, investors favorably compared Pakistan to India, China and Vietnam. Every time we did a road show, we were highly successful in our endeavors whether it was the OGDC flotation or UBL GDR or Euro bonds or large privatizations, investors flocked to our offerings. We were a success story in the international financial markets and most of our issues became benchmark issues.

Unfortunately, this Government has not been able to maintain Pakistan Brand rather it has eroded considerably. In this erosion the first stone was foolishly cast by our erstwhile finance minister Mr. Ishaq Dar who displayed incredible irresponsibility and immaturity in lambasting the Pakistani economy in front of the global media; at a time when the global investment community was looking towards the new government for its economic vision and future strategy the new finance minister harangued them on how bad the Pakistan economy was. In spite of this onslaught, the rating agencies maintained their ratings until as in their words the new government comes up with its economic game plan. The new government was at this time caught up in utter confusion on the economic direction of the country with rapid changes in the finance setup and revolving finance ministers.

This lack of focus was disastrous for us as against this back ground our financing plan included a number of financial market transactions totaling around $ 4 billion that were ready for the road shows. These included the National Bank, Habib Bank, and KAPCO. The exchangeable bond issue of OGDC, and the strategic sale of PSO shares along with management control. With the stock market at an all time high the transactions would have been a great success and the road shows would have generated tremendous good will for the new government and would have highlighted the smooth transition that happened in Pakistan. It would have been a great opportunity to showcase Pakistan in front of the international investment community. Instead, in an inexplicable move the Government cancelled all the transactions. Pakistan directly lost desperately needed inflows of $ 4 billion and with the rising oil import bill, this loss placed a huge pressure on the reserves and the currency. Indirectly the loss was probably twice as much as foreign investors withdrew to the sidelines and domestic investors moved their investments overseas. It might be mentioned that while the government failed to take advantage of the window of opportunity, The MCB bank taking advantage of the great valuations on the stock market in April 2008 privately placed some 20% of their equity with a Malaysian bank for a cool sum of $ 850 million.

 If the Government had acted similarly, it could have generated sufficient flows to prevent the meltdown which ensued. Reserves drawdown would have been avoided, the spread on our international bonds would have narrowed down to May 2007 levels, borrowing from the State Bank would have been halved and the government would have had a stable environment for tackling the oil import bill and food inflation. Our current predicament is clearly a creation of our current economic miss-management. A few heads should have rolled because of this incredible lapse.

What could have been done in April/May 2008 with the market at 15700 points cannot be done in September/ October 2008 with the market at 9100 points. The international markets are closed to us. We have to wait until our markets get back to their historical levels and investor confidence is restored. How will this be achieved? The biggest challenge for President Zardari is to restore the eroded Pakistan Brand; back to its original luster and in the process revive the investment flows that can sustain our growth going forward.

First, while we should be on the right side of the world in the war on terror, the world should seriously help us in our endeavor to build a better economic & future for our people. The new president has to focus on the economic issues facing the country. His international trips to China, Saudi Arabia, Gulf, USA, UK, should promote Pakistan economic interests as a pivotal objective. He should not only promote government to government economic cooperation but also promote private sector to private sector interaction with these countries. We need strong, immediate and implement able commitments of around $5 billion balance of payment support from these countries. In addition, their leadership at the highest levels should support international moves to promote our economic growth and stability. Better and preferential access to EU and USA markets, greater quotas for labor and deferred payments for oil in Saudi Arabia and Gulf region. A full calendar of investment conferences and single country exhibitions need to be carried out under the direction of the president. The promotion of exports and investments has to be the major focus and objective of the President. If we can generate foreign investments greater than last year level of $ 8 billion and export growth is revived to healthy double digit levels we would start coming out of the current malaise.

Second, it is clear that Pakistan growing trade and current account deficit is being driven by ever escalating oil prices. With the oil bill crossing $12 billion a year there is no option other than passing the full prices to the consumers and eliminate the burden on the budget. This will also help in promoting conservation and improving energy efficiency. Unfortunately, the transition to a new government took place at a time of unprecedented increase in global fuel prices.

For example at the time of elections, oil prices were around $80 a bbl whereas by July 2008 it had reached $140 a bbl. While we had planned to limit the fiscal deficit to be under 6 percent and largely financing it from non state bank sources, including commercial bank borrowing and non debt sources. The new government ended up with a much higher deficit level and financed it totally from the state bank. We have now reached a stage where the issue is no longer energy availability rather it is energy affordability. We have almost 20000 MW of power generation capacity but we are only using 12000 MW because the Furnace oil used for thermal generation has become extremely expensive and beyond the ability of Pepco to pay for. As a result, available capacity is not being used leading to load shedding.

 The exorbitant power price increase can only be avoided in the short run if transmission and distribution losses are dramatically curtailed and in the medium term we substitute imported fuel with domestic sources. Thermal power based on imported oil costs around Rs 16 per unit (Kwh) whereas hydel power from Kalabagh would cost Rs 2 per unit. The power from Thar coal will cost around Rs 8 per unit. While Kalabagh can be completed in five years, Technical problems with Thar coal can delay its availability indefinitely. If the mega Kalabagh Dam is launched in 2008 it will not only jump start the economy; it will also be seen as President Zardari’s gift of Hydel Power to Pakistan just like PM Zulfiqar Ali Bhutto Gift of Nuclear Power to Pakistan thirty five years ago.

Third, as far as inflation is concerned it will start coming under control as global oil and food prices filter through the economy. Our Inflation index is heavily weighted in favor of food energy and commodity prices. So it is highly sensitive to these prices. Since global energy and food prices are easing the same should be felt in Pakistan in the days to come. Pakistan’s inflation is a supply side and cost push phenomenon and further monetary tightening would not help. Instead, a tighter fiscal policy with a lower deficit target and phasing out of borrowing from the state bank will help. At the same time in this period of great change we should ensure that the poor of the poorest are able to cope with the changes particularly higher food prices and social safety nets are made fool proof so that nobody in Pakistan stays hungry.

Fourth, for the first time after 2nd world war agriculture commodity prices have moved in favor of the farmers. We have to ensure that we pass on this benefit of higher global prices to our farmers by deregulating agriculture prices. The only other incentive our farmers need is predictable water supply. This can be ensured by building more water reservoirs and better water management so that farmers can move from unpredictable subsistence agriculture to commercial agriculture. Study after study in the sub-continent has shown that large multi-purpose dams are the quickest way out of poverty. With oil prices at $100 per barrel and destined to double over the next decade there is no way, other than developing our full hydel potential quickly to usher in a new green revolution and providing sustainable global advantage to our economy of cheap hydel power.

Fifth, we should stop cribbing about the Consumer economy. Pakistan is a large country with 160 million people and 100 million under the age of 25. With dependency, ratios going down we can reap a demographic dividend over the next several decades. While these youngster have to be prepared for the work force they are already becoming a huge engine of growth for our markets that are growing at fabulous rates to meet the demands of these Pakistani baby boomers, Just like in Europe and South Korea after the 2nd world war, our baby boomers will be the back bone of our middle class and will determine the growth of our economy over the next 40 years until they start to retire. This gives our businesses an historic opportunity to grow and produce the goods and services the population needs. In an era when world is facing a crisis of aging populations we are blessed with opportunities of a young and dynamic population. In this regard consumer financing which has become a butt of criticism has just scratched the surface.

In our country, consumer finance is around 5 % of GDP whereas in the developed world it is over 100% of GDP. Consumer financing has a long way to go and along the way it will continue to be one of the engines of growth for us. Any ill founded moves to curtail the consumer economy will hamper the growth of our businesses. We are now going beyond textiles into engineering, electronics, chemicals, food processing, construction materials, real estate and many other sectors based on our domestic markets as these markets continue to expand we will reach economies of scale that will make our producers and the large associated vendor industry competitive on a global scale and the same producers will be the base for diversifying our exports into more sophisticated and fast growing sectors of the world. Ultimately, if our law and order permits and our national psyche adopts rules of globalization, and globalization as our road to prosperity we will become one of the workshops of the world along with India and China.

Sixth, there are hundreds of infrastructure projects at various stages of implementation including the National trade corridor, Neelum Jhelum hydro power project, KKH upgradation, Urban renewal in Karachi and Lahore, mass transport projects, airports, Baluchistan road network, Gawadar port, industrial parks etc., these projects have to be completed on time and scope. The last government also created an Infrastructure project development facility (IPDF) that needs to be fully utilized so that we can bump up (almost double ) our expenditure on infrastructure particularly hydel projects through public private partnerships.

Seventh, the FBR has to continue generating revenues for the government to carry out the nation building programs. Last year a target of over 4 trillion rupees was set for FBR within the next ten years, four times the current levels reaching about 16 % of GDP. Along with a target of 4 percent of GDP for education expenditures with 1.5 % allocated to university education. The education strategy was based on providing universal access to primary education, retaining enrollments into secondary education and technical and vocational training and improving standards at the college and university levels. Nine new engineering universities in collaboration with European, Korean and Chinese universities were in the pipeline. Going forward we should focus on quality improvement through a big push forward in teacher training, curriculum development and public private partnerships at the primary and secondary schools level and continued efforts to upgrade the universities and hopefully achieving the setup of the new engineering schools. The national vocational and technical education commission (NAVTEC), has gone through its learning curve, and can now be used to upscale its programs to give technical and vocational training a quantum jump.

Eighth, in the financial sector we have created a world class banking system with our banks featuring amongst the leaders in Asia. The Quality of our bankers is second to none and can work in any global setting. The challenge is to further increase the reach and competitiveness of the financial sector with Microfinance playing a much greater role. Our microfinance frameworks are the best in the world and a strong base has been established which can grow manifold to bring financial services to the masses. The growth of the financial sector will continue at a sizzling rate as the financial sector expands into consumer and housing finance, rural and agriculture finance and development of debt and bond markets, growth of mutual funds, pension funds and other savings instruments.

Ninth, in the competitiveness area we must continue to deregulate and privatize the economy to create a vibrant and competitive economy. Second generation reforms in economic management have to be continued. An essential pillar of a private sector led market economy, the Competition Commission has to be given financial independence and allowed to work unhindered. The competitiveness support fund, business support fund, agriculture support fund, Khushal Pakistan fund, smeda etc. have to be used to implement reforms that help the market economy become more productive and competitive from the grass roots level up to the corporate level.

Finally, Pakistan needs to continue to grow at 7 to 8 percent to create the 3 to 4 million new jobs per year needed to accommodate our youth and create a dent in poverty in our lifetime. We cannot embrace isolationism, jihadism or any other form of global confrontationist movements. Instead, we have to build on our successes, unleash the potential of our people, exploit our competitive advantages, take advantage of global finance, integrate with global markets, and continue building a dynamic market economy with world class infrastructure to achieve our growth objectives. This is the recipe for the future and the way forward for Pakistan.



Survival of the fittest

August 27, 2008

(Written by Afaq)


Have you ever studied Darwin’s “theory of Evolution”? For me, to some extent, it’s equally applicable to the international relations and all the conflicts. ‘Natural selection’ and ‘Survival of the fittest’, the leading axioms of it, also are accepted as a yardstick in the challenging game show among the nations, on every ground-Political or Economic. One must need to be smart enough and competent to survive in the second to second changing environment, knowing the art of making analysis of things happening on stage and behind the scene. One must be too quick in making right decisions at right time, and must be too smart to undo the mistakes if ever being made. The real test of nations (and leadership) comes, not when everything is going fine and smooth, but when things are deviating from normal course, and when perceptions are ruling over the facts.


We have faced well such challenging times, from the day one of the creation of Pakistan, which took a decisive turn regarding the aftershocks of Afghan-Soviet war. While, the conspiracy behind the crashed plane of General Zia-ul-Haq was still unfolded, we found USA saying ‘Good Bye’, and we are forced not only to feed the Afghan refugees, but also have to stand helplessly among the militant organizations, being covered under the label of Jihad. That was not the end. More difficult challenges were yet ahead. Nuclear tests, Kargil war, 12th Oct. 1999 plane hijacking, 9/11 aftermath, Daniel Pearl assassination, nuclear proliferation, 8th Oct. 2005 Earthquake, Balochistan insurgency, tribal areas mutiny, suicide bombers, extremism and non-stop threat of inflation……. all that are just few of the tags of the test for leadership along walking upon razor edge of making balance in relations with India, Afghanistan, United States and China.


After holding the most difficult offices for 9 years, finally General Pervez Musharraf has resigned. He is no more on board, to be used as a punch bag by media and political parties. Post-Musharraf era is to face harsh realities, rather allowing politicians and media to fabricate the facts. The nation already has suffered much of nerve-breaking distress. Now, we have no more prospects to waste in running along the vicious square of useless exercises on every front. It’s not the time to play politics, but to keep the national interests first.


We need to analyze the situation and to deal with the issues on emergency basis. Let’s have a quick look upon the challenges ahead;


1-Economic Front: From the state of complete default at late 90’s, Pakistan revived well its economy and even declared as the one of the fastest growing economies, with foreign reserves reached to 17 billion dollars from hardly 700 million dollars at 12th Oct. 1999, and growth rate reached to 7% for the first in our history. Over the years, our economy managed well the exchange rate of dollar to get locked between Rs. 60 and 61. In January 2008 issue, an international magazine ‘Economist’, has complimented the strong foundations of our economy by saying Pakistan as a safe haven for investment.


Regrettably, the situation has been reversed by 180 degrees after the revitalization of democracy in Pakistan. Now our foreign reserves are declined to hardly 9 billion dollars, and exchange rate of dollar up to Rs.77. Now, Pakistan looks no more a safe haven for investors. Foreign as well as local investors are packing to run away. Business community is waiting desperately for someone representing government to have sitting with them, and work out the reasons behind the economic collapse down, and the way outs of it.


The foremost and biggest challenge to Pakistan is to recover our economic indices, and to attract the investment back to Pakistan. Otherwise, the inflation and devaluation of currency would lead us to the end of everything……. everything, which one can imagine!


2-Writ of the state: Would you ever allow any stranger or enemy to jump down at your home and start killing your loving ones. If No, then why do we remain silent of those enemies of our loving homeland, who are openly challenging the writ of the state. We have to open our eyes regarding increasing threat of terrorism and extremism all around. We must bring them to an end. First, make a distinction. Terrorism is a global phenomenon of involvement of militancy, while extremism is linked with obscurantist views and indoctrinated mind set. Both need different strategies to deal with. A militant, being standing against the state must brought to justice by force. On the other hand, an extremist needs a different plan to subjugate. A wrong idea must be conquered by the true one. An old thought must be defeated by the newer one. A rigid ideology must be washed out by the flexible one. We must not forgive the anti-state elements, just because they are hiding themselves in the label of Islam. Killing the innocent people, blasting the girl schools, indoctrination of students of madrassas for suicide attacks, slaughtering our soldiers and crossing the border to make insurgency in Afghanistan is enough to expose their services to Islam. Enough is enough. It’s time to speak louder against them, instead of calling them mujaahideen.


Having said earlier, post-Musharraf era is to face the harsh realities, and not to play politics on the issues of our sovereignty. Brace the facts. Few days ago, soon after POF Wah cantt twin suicide blasts, which martyred about 100, Mr. Rehman Malik from interior ministry alarmed the nation, ‘‘we have only two options. Either to hand over Pakistan to Talibaans, or to launch operation against them.’’ Same sort of upsetting statement was coined by Prime Minister Gilani, few weeks ago, ‘‘there are foreigners hiding themselves in tribal areas, and are planning the deadly attacks. We don’t want to make any precedent for one more 9/11 to take place. We are fighting the war against terror in our own interest. Its not the war to please USA.’’ Chief Minister NWFP justified the same, ‘‘if militants keep on attacking the government offices and girl schools, why we allow them. The militants wouldn’t be forgiven by government, even if they surrendered.’’ Isn’t it the same outlook which Musharraf alarmed the nation again and again. What a shame for the politicians, if repeat once more, ‘‘Nation has rejected the Musharraf’s policies, in war against terrorism, by giving us the mandate.’’ Come on. Nation knows nothing, but one… that someone has badly fooled again in the name of democracy.


3-Democracy, but not demon-crazy: Yes, our politicians have already betrayed the nation enough in the name of democracy. We suppose democracy to be an exercise of having elections, in which we caste vote for some individual, representing some party. Fine enough……. but it’s time to analyze why such exercise always brings desperation and disappointment for the nation.


The political system in Pakistan is gripped by feudalistic mind set. We know, the same families are supposed to rule over us for decades… Bhutto, Sharif, Lughari, Mari, Mengal, Lashari, Bugti… blah blah… It’s a mafia. Go and observe. Their own people are like slaves to them. Having no penny in pockets, or bread in bellies, still they chant slogans for their feudal lords. After being elected, these lords never allow any developmental work in their own locality, and never allow any school to get operate, fearing to have conscience of people to wake up, which would one day deprive them of supremacy upon them.


When things get worst and going out of control, the army has to intervene in politics to safe the nation from further destruction. As a matter of fact, people always applause the army, calling them the savior of nation, but after some times, again start demanding the democracy. The vicious cycle carries on, and the dreams are always cursed by the democracy. To make end to that exercise, we need to educate the masses, and finally to abolish the feudalistic culture. It’s easier said than done. To get out old tested (and failed) faces from our political culture, a good step was taken by earlier, to make graduation as mandatory to contest. Unfortunately this was later revoked. It must be brought back. The right to make policies for Pakistan and to pass the bills in assembly must not be given to undergraduate illiterates. Moreover, new political parties must be introduced to challenge the monopoly of few old parties. The new parties should be composed of new faces, most likely to be young, educated, and visionary and better not from the political background. Otherwise, it would be demon-crazy or damn-crazy under the slogan of Democracy.


4-Propaganda front: This is the multi polar world. Nothing now happens in isolation. Every bit of information now reaches to every spot of world within a fraction of second, by internet, newspapers, mobile phones and satellite channels. ‘Propaganda’ is now accepted as an art to manipulate things to achieve the desired goals. 24-7 media, now is considered as an important tool to stabilize or destabilize the nations. 

Being fair, credit goes to General Pervez Musharraf, on giving full liberty to media for the first time ever in Pakistan. Now, having more than 70 private channels, we are in better position to educate and inform the masses. Now, with such a vibrant media, we need to make sure few things at media front.


1– To keep the national interests first.

2– To raise the morale of nation high.

3– To follow the facts, not perceptions (To be neutral).

4– To portray the positive image of Pakistan.

5– To act as a defense line to deal an international campaign against Pakistan.


Our nation has already suffered lot of trauma, due to the frequency of ‘Breaking News’ and ‘News-Just in’ mostly featured by non-issues and rumors. It’s time to keep the national interests first. Our nation is already trapped badly in lot of miseries, and in vicious marathon to get ‘bread n butter’. No one has enough time to or resources to explore out the reality out of rumors. Its media, either electronic or press, which injects the perceptions in the minds of masses. Our nation has already been enslaved to pessimism and despondent thoughts. Its time to raise the morale of nation higher. Our media, unfortunately, has proved itself too biased in the hatred campaign against General Pervez Musharraf. Its time to follow the facts, not to build illusion of perceptions.


To put our Economy back on track, and to maintain the law and order situation, featured by the political stability, our media has to play its role, with a feel of responsibility. One sensitive graphical image or one embarrassing news on media, results in the stock market to crash, the next day, and delivers the negative image of Pakistan among international community.


Its not the time to clean our dirt live on TV channel, but its time for media to act as a defence line to secure the interests of Pakistan.


Now, in last, I would recall your attention again towards the leading axioms of Darwin’s theory of Evolution, i.e., ‘Natural Selection’ and ‘Survival of the fittest’. No nation is born slave or master. Nations evolve through difficulties. If one is capable enough to meet the challenges successfully, naturally get selected to the next level of competition and this struggle continues. In this competition, its only the fittest who survives.


Out of lot of challenges, I have picked only few. i.e., Economic front, writ of the state, Political front, and vibrant media front. All are dependent on each other. We have to work out on all these fronts strategically on emergency basis. We have no more time to waste. Otherwise, it would be too late!!!


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