The GDP growth rate of 6.4 per cent for
FY04 exceeded the target of 5.3 per cent for the year.
Next year's GDP is also expected to grow by over 6 per
cent. While these are commendable growth rates , the question
remains why their impact is not felt far and wide in the
country. Even for those within the market system, the
impact may be uneven.
Last year's (FY04) growth has been fuelled
by 13.1 per cent growth in the industrial sector. Growth
rate in agriculture decreased to 2.6 per cent in FY04
from 4.1 per cent in the previous year even though agri-credit
disbursement exceeded the annual target. Major crops experienced
a substantial decrease in their rate of growth in FY04.
While farmers were partially compensated by higher prices,
common people were burdened.
The CPI food inflation rose by 13.4 per
cent in June 2004 as compared to a mere 0.9 per cent increase
in June 2003 (SBP annual report). Food price increase
feeds into the cost of labour and eventually into the
prices of manufactured goods and services. According to
the SBP, "food inflation, October 2003 onwards, was
largely attributed to artificial supply shortages of wheat...
(as) Government's capacity to intervene was hampered by
depleted wheat reserves" (Dawn, 31-10-04).
Water shortages may further depress agricultural
output in general and wheat output in particular this
year for FY05. Food availability and food prices in FY05
will pose a major challenge. For, overall GDP growth of
above 6 per cent will not be able to mitigate the hardships
that common people are already experiencing in providing
for the family and managing their meagre kitchen/household
budgets.
Despite the rising prices, investment
demand and consumer demand for manufactured goods remained
on the rise. Consumer demand was driven primarily by financing
facilities available to them. While there was strong growth
in gas and electricity distribution and also in wholesale/retail
trade, construction sector recorded the highest growth
due to wider availability of housing finance.
Financing facility, inter alia, also helped
boost demand in automobiles and electronics as the monetary
policy remained accommodative. Low rates of interest despite
rising inflation indicated the SBP's policy inclination
towards growth. Cheaper export finance and higher international
demand helped the export-led industries in textiles, leather,
and pharmaceuticals. Will low-cost financing facilities
continue to be available in FY05 as they were previously?
The SBP will be walking a tight rope given
the twin challenges of rising inflation and falling value
of the rupee. According to the SBP, pressure on the rupee
is likely to increase due to increasing oil import bill
from rapidly rising international oil prices and in the
wake of falling exports from global economic slowdown.
Increase in international oil prices is not likely to
be absorbed by the government for too long. Once it is
passed on to the consumers, inflation will be fuelled
further and targeting inflation rate at 5 per cent will
be a major challenge as it already is also due to rising
food prices.
If the SBP chooses to focus on containing
the rate of inflation, the rates of interest will rise
with their related impact on consumer and investment demand,
exchange rate, and exports. Juggling these various conflicting
goals will be a major test for Pakistan's economic managers
this FY05. They earned laurels in the preceding year as
all the key economic indicators used to gauge economic
performance looked good. It was another matter that the
economic health remained weak despite "good economic
performance." That economic "performance"
cannot be used interchangeably with economic "health"
in a developing country is a matter that we have to continue
to ponder upon until such time that the two actually become
synonymous and, therefore, interchangeable.
For, economic health is gauged additionally
by per capita income, income distribution, poverty levels,
and social indicators gauging the level of human development.
It is indeed ironic that despite an impressive rate of
growth by world standards, Pakistan scores low on human
development with highest infant mortality rate and total
fertility rate in the region. The levels of literacy are
amongst the lowest and levels of poverty amongst the highest
in the region. While this segment of the population is
advised to wait for its trickle, the economic managers
are consumed in securing the gains for those within the
market system.
With emphasis on growth driven primarily
by industry due to an easy monetary policy, even those
within the market system are not likely to continue to
reap benefits for a long time unless agriculture too is
planned for and industry made competitive. Until then,
even the beneficiaries of the market system would remain
skeptical and the policy space would remain occupied with
a concern for ensuring gains to the existing beneficiaries.
Achievement of this goal then becomes the sole criterion
for calling the economic policy a success and economic
performance acceptable, however tenuous the means may
have been. The Asian Development Bank's (ADB) advice is
worth heeding.
As advised by the Asian Development Bank
(ADB), industrial development and sustainable competitiveness
requires a national strategic vision that should reflect
the interests of all the stakeholders including the private
and public sectors, employees' organizations, and trade
unions (Dawn, 31-10-04). This appears akin to the corporatist
model followed by the Western European countries after
the Second World War. This model was a collaborative effort
of the government, business, and labour to promote rapid
industrial development which they achieved.
In Pakistan, what is additionally needed
is purchasing power to undergird industrial development
mainly to provide a boost to the non-interest sensitive
components of consumer spending. For this purpose, emphasis
has to be on the bulk of the rural population whose integration
into the national economy can provide the much needed
fillip to consumer demand and thereby to industrial development.
A national strategic vision is, therefore, also imperative
for the agricultural sector.
The current emphasis of neo-liberals is
on supply-side to the extent that they believe that an
increased supply of educated workforce would, by itself,
create a demand for labour when the reality is to the
contrary, given the large numbers of educated unemployed
in the country. Since the potential educated workforce
has to settle down for jobs for which they are overqualified
or which can be handled just as well by the uneducated,
the uneducated find little reason for sending their children
to school.
While investment in education for those
who demand it is in order; this policy will, by itself,
neither be able to compel the disenchanted and the disinterested
to educate themselves nor will it be able to provide jobs
to the educated unless the wheel of the economy is turned
in parallel to absorb the available human capital. Unless
the educated are readily absorbed in a growing economy,
there will not be rationale enough for the uneducated
to seek education.
Education and job creation have to be
pursued in parallel through a "national strategic
vision," ala ADB if no one else. Since we view these
to be sequential processes, the upshot is that the GDP
grows at a spectacular rate without a commensurate growth
in employment opportunities and reduction in poverty levels.
Since GDP growth is emphasized in the present and job
creation in the future, GDP growth becomes an end in itself
in the present rather than a means to the end of human
development.
Even more ironically, human development
is being viewed as a means to the end of GDP growth by
our conservative economic managers when economy exists
not for its own sake or for some but for all the people
without whose inclusion the outcome will never be economic
development.
