Tag Archive: Economic growth


The times are tough and testing, and the life has become difficult for all barring 5% of the elite with perennial sources of ill-gotten wealth. The Government is in a bigger fix than the citizenry. The problems of rising prices and unemployment and the inflation are the real challenges and on top of that there is sometimes motivated, sometimes sincere criticism on the government and everyone, from a man on the street to a celebrated economist, has a package of suggestion to bail the government out of this quagmire.  Some say that the Cabinet should be downsized, some target expenses of PM House. Nobody seems to be offering a solution practical enough which could steer Zardar-Gilani government out of this crisis. It has been reported by The News International that renowned economists are of the view that until the government stops borrowing huge amounts of money from the State Bank, the inflation and interest rates can not be brought under control.

Participating in a discussion, ‘IMF Conditions – Future of Pakistan’s Economy’, organized by the Jang Forum, economics expert Dr Akmal Hussain said that the government had borrowed Rs500 billion from the State Bank, triggering inflation and a simultaneous rise in the interest rates of the commercial banks and depleting the country’s overall economic state. He said that the IMF, while following double standards, was trying to promote economic contraction in Pakistan in this time of recession, rather than promoting economic stimulus, like it had done for the western countries at the time of recession.  This Bretton Woods sister may be gorgeous but she is ruthlessly hypocrite. Akmal Hussain said that there was a dire need of increase in revenue of the country which could not be achieved by limiting public sector development and contraction of the national economy.

The country had lost one third of its infrastructure in the flood disaster and the situation should be exploited as an economic stimulus to invest in public sector and infrastructure building to generate revenues, create employment and deal with the disaster, all at the same time. He said that the budget deficit should be left as a secondary issue as once economic growth was ensured through injection and production of revenue through economic stimulus, the budget deficit would decrease automatically. He said that the European countries, which were going through a budget deficit of nine percent, were making up through economic growth, whereas, Pakistan had only 6.3 percent of budget deficit.
He said that massive amount, around 18 billion dollars, needed for flood affectivities’ rehabilitation could not be reached without international funding. He stressed the need to ensure an effective financial management system, project management and project transparency to build trust of foreign investor and donors, not just in emergent situations but also in routine operations. He proposed a social protection program featuring an Employment Guarantee Scheme on the basis of ‘cash for work’ for which the flood hit areas reconstruction could play as a vital platform.

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Pakistan’s President has announced that his government plans to tax the rich to help the poor i.e. flood-hit people. This sincere initiative is a happy development which should be appreciated but will the rich and mighty pay up or will they live up to their reputation of plundering but not paying back. Pakistan’s floods have placed the country at the head of a bumpy road ahead when the country is forced to make tough choices. To start with, Pakistan’s Central Bank has jacked up the interest rate which will have many implications for the flood-hit fragile economy, but the question is: did the new Governor who is an economist of international standing, have any other viable option? Businessweek in its current issue has reported that Pakistan’s deadliest floods ruined crops alone worth 281.6 billion rupees ($3.27 billion), destroying rice, cotton and sugar. And this is one of multiple official versions this time coming from the horse’s mouth, the Agriculture Minister himself. However, the floods have damaged about 10 million tons of crop, which Credit Suisse values at about $1.9 billion.

In this backdrop when Pakistan’s major contributor to the GDP has suffered so badly, the inflation was already out of control and the Bretton Woods sisters had no mercy on the devastated economy and battered populace, this was probably the only thing in his power that a Central Bank governor could do to arrest the inflationary trends. Wall Street Journal has reported that it’s a decision he had to make with incomplete information. Total assessments of the damage to Pakistan’s economy from floods that began in July are still pending….He chose right. The State Bank of Pakistan on Wednesday raised its policy rate by half a percentage point to 13.5%.

The paper says that holding off would have meant a risky delay of action against a worsening inflation problem. Consumer prices in Pakistan have been rising too fast for three years, with gains close to a 12% rate throughout 2010. The floods will amplify the problem, but floods aren’t the only source of a price shock in Pakistan. Islamabad is under pressure from the International Monetary Fund to increase electricity tariffs and raise general sales taxes and import duties—all of which would add fuel to the inflation problem. Not taking these steps could have the country miss out on a $3.2 billion IMF payment due by the end of this year. Pull it all together and economists at Standard Chartered expect inflation to average 15% in the fiscal year that began in July.

Then there’s the fragile state of Pakistan’s economy. Flood damage means Pakistan’s critical agriculture sector will contract 1.7% this fiscal year, the sector’s first decline in a decade, Credit Suisse predicted. It means economic growth could slow to 2.5%, much slower than last year’s 4.1%, and a crawl by Pakistan’s standards. Add to this the infrastructure damage—from power plants to highways—and industrial growth, too, will suffer. The International Labor Organization estimates 5.3 million people will lose their jobs because of the flood. Raising rates, and promising to keep doing so, in such an environment is certainly not going to win Mr. Kardar any friends in the business community. But inflation is the more frightening of Pakistan’s economic challenges. Price stability is far more critical to Pakistan’s long-term growth. Foreign aid and remittances from overseas Pakistanis will ensure money flows into the economy.