A Critical Evaluation of Pakistan Economic Performance

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A critical evaluation of Pakistan

Economic Performance

Musharraf Regime

[1999 ² 2007]



The Third Military Government

Musharraf¶s philosophy : ³Enlighten Moderation´

³Enlighten moderation is the term coined by Pervaiz Musharraf

which applies to practicing Islam moderately as opposed topracticing fundamentalist version of Islam.´

After 9/11 American government offered Pakistan to join them in

the war of terror against extremist Muslims and Musharraf gladly accepted this offer. This gave the birth to the concept

of µEnlighten Moderation¶. Some also believe µEnlightenModeration¶ is a misnomer for a new US Religious Order



7 Point Agenda and its Irony

1. Rebuild National Confidence and Morale:

Pakistan is rich and is blessed with fertile land, abundantwater and mineral resources. Musharraf promised to ensure

its mobilization

Pakistan faced shortages of basic food commodities manytimes. Furthermore, no research and developmentprograms took place to mobilize these resources.




2. Strengthen Federation, remove Inter-Provincial disharmonyand restore National cohesion

Joining hands with America in the war of terror in our owncountry has killed more than 5000 civilians (stated figure) bymeans of 202 drone attacks creating disharmony like never before. From 800-1200 Al- Qaeda in 2004, the numbers

have increased to more than 50,000.

197 suicide attacks in three years 2007-2009




3. Devolution of power to the grass root level

± Grass root level corruption.

± Powers given to uneducated people who were not familiar withtheir usage.

± Senior officials were reporting to uneducated Nazim that createdlack of morale.

± Funds were unequally allocated to a number of Nazim. ± Only 3% of funds for mega projects were allocated to local

governments.




4. Revive Economy and restore Investor confidence

Yes ± some sharp measures were taken and there's beeneconomic growth at macro-economic level and investmentis flowing in due to many corrective steps initiated byMusharraf. (This will be discussed in detail later in thepresentation)




5. Ensure law and order and dispense speedy justice

Failed miserably ± There was no control over law & order situation in his era. Lal Masjid incident, May 12 incident,more than 125 suicide bombings in 2 years, forcefulremoval of Chief justice of Pakistan and declaration of emergency are few of the examples




6. Depoliticize State institutions

A forgotten agenda! No work done to make it happen




7. Ensure swift and across the board accountability

When Musharraf came into the power, the tax to GDP ratiowas 9%. Musharraf promised that in next 3 years the ratiowill increase to 15%. After his tenure of 9 years the tax toGDP ratio was 7%



A Decade of DeceptionA Decade of Deception

and Manipulationand Manipulation



Banking Sector

Shaukat Aziz was a consumer finance man and showed his truecolors when he began to push for:

The deregulation of the banking sector, including sharplycutting loan interest rates, allowed banks to engage more

liberally in giving consumer finance loans

As a result of these policies, the banking sector boomedand many foreign banks from the Middle East and other

parts of the world came flocking to Pakistan. Banking profitssoared, and banks were soon awash in liquidity



Banking Sector

Like all bubbles, the low-interest-rate bubble, too, had toburst one day. Within a few years, loan interest rates againbegan to rise steeply, soaring from a low of about five per

cent per annum in 2002-03 to over 15 per cent in 2008 for business loans and 22 per cent for consumer finance loans



Software Industry

Pakistan completely missed out the first phase of the globalsoftware boom of which India took full advantage (earningas much as $ 10 billion in exports annually over the last

decade)

Pakistan¶s exports from software and related services werenegligible (around US $ 700 million expected in FY 2007).



Easy access to low-cost consumer finance led to a sharp risein the sale of consumer goods such as cars, motor cycles,cell phones and home appliances. The sale of cell phones, in

particular, registered a spectacular rise, with the total number of cell phones in the country soaring from less than 1 milliona few years ago to 80 million today.



Telecommunication Sector

On the one hand, this rise in the number of cell phones vastlyincreased communications connectivity in Pakistan, allowing hugenumbers of people across the country to talk to each other andconduct business transactions by phone. On the other hand,however, the absence of cell phone manufacturing plants in the

country meant that all the phones had to be imported, adding to thecountrys import bill and further widening the already growing tradegap.

The government often cited the increase number of cell phones as anexample of success of its economic policies

The bulk of the billions of rupees in revenue earned by the foreign-

owned cell phone companies were being remitted abroad becausethe government had imposed no limit on such transfers. If one wereto factor these transfers into the GDP equation, the economysgrowth rate, in real terms, would not have been as high as thegovernment portrayed it to be.



Telecommunication Sector

On the one hand, this rise in the number of cell phones vastly increasedcommunications connectivity in Pakistan, allowing huge numbers of peopleacross the country to talk to each other and conduct business transactionsby phone. On the other hand, however, the absence of cell phone

manufacturing plants in the country meant that all the phones had to beimported, adding to the country¶s import bill and further widening the alreadygrowing trade gap.

The government often cited the increase number of cell phones as anexample of success of its economic policies

The bulk of the billions of rupees in revenue earned by the foreign-owned cellphone companies were being remitted abroad because the government hadimposed no limit on such transfers. If one were to factor these transfersinto the GDP equation, the economy¶s growth rate, in real terms, would nothave been as high as the government portrayed it to be.



Water and Power Crisis

Only one Dam named Gomal Zam Dam was built in thisregime where its storage capacity was negligible for thecountry.

Not a single Megawatt was generated by the governmentoperated power houses and rental power projects werecontacted to resolve this issue.



Expansionary Monetary Policy

Increasing money supply and decreasing interest ratescreated a double digit inflation.

Middle income and lower income households suffered a lot

from this inflation. It was as late as 11th April 2005 that the State Bank was

awakened to the need for adjustment in the interest rate totighten the liquidity in the economy.

Reluctance on the part of the State Bank to raise theinterest rates close to the rate of inflation has been a major failure of the Bank.



Growth

Too much reliance on services sector, real estate, and thestock market.

Service sector was 54% of Pakistan's economy but

employs only 36% of the population.

y Real estate development was one of the important sectorsof the economy as was the modern service sector. Neither,at least in the context of Pakistan, generated employmentand income for the poorer segments



Growth

Growth came from the sectors which did not providemuch employment to lower income groups

Agriculture sector grew by 1.5% and banking sector grew by 30% but that was a jobless growth.

The real productive sectors of the economy, both exportoriented manufacturing industry and agriculture have

been completely ignored. The land under cultivation in 1999 was 23 million

hectares, which is still the same.



Debt Burden

General Musharraf's regime has broken all previousrecords in borrowing and has pushed the country into adebt trap.

Such debt apart from additional borrowing is alsocomposed of rescheduled debt as they are unable togenerate sufficient wealth from the domestic economy.



Where Did Growth Come From?

Contradicted the governments' claim that the high growthrate is a result of its better economic performance

Whereas it is the result of foreign aid, loans, remittances,privatization, multilateral financial assistance programs andabove all the event of 9/11, which changed the face of Pakistani economy.



Economic Deceptions

In 2007, the Planning Commission¶s chief economist wastransferred when he refused to approve government¶s claim thatpoverty level had been reduced by 10 percent from 33 to 23

percent. If the economy grew by US $100 billion in the last eight years on

a base of US $65 billion, as claimed by Dr Salman Shah, then itmeans that it grew at a compound annual growth rate (CAGR)

of 12.35%.This would mean that Pakistan's economy grew faster thaneven China's



EconomicDeception

Another blunder was committed by first allowing export of wheat at around US $200 per ton and then importing thecommodity at over US $400 per ton that resulted in a loss

of around Rs 40 billion. Agriculture sector was nominal even after 7 years, as 21

million tonnes of wheat and 11 million bales of cotton wereproduced in 1999 as compared with 23 million tonnes of

wheat and 13 million bales of cotton.



EconomicDeception

According to the Pakistan Economic Survey for 2006-07,the national expenditure on education as a percentage of GNP declined from 2.2% in 1998-99 to 1.9% in 2005-06 as

against the internationally desired level of 4.0%. Average annual GDP growth rate under Musharraf¶s eight-

year rule (5.4%) was only marginally higher than thatachieved under the preceding civilian governments of

Benazir Bhutto and Nawaz Sharif during the 1990¶s (4.6%).



EconomicDeception

Loan amount of Rs 54bn was written off, which was theliability of friends of Musharraf.

In order to show increase in GDP, motor vehicles were

declared as Machinery.



Nominal GDP vs. Real GDP

0%

5%

10%

15%

20%

25%

30%

Nominal GDP

Real GDP



Privatization

Country earned 417 billion Rupees ($6.41 billion) throughprivatization. , Claiming this was a record amount,incontrast to the 57 billion Rupees ($.870 million) earned by

civilian governments between 1991-1999. According to Anti-privatization Alliance Pakistan, a massive

1550 billion Rupees ($23.84 billion) worth of corruptionoccurred during this eight-year privatization push.



Privatization

Looking at the privatization of financial institutions alone, arecord looting of 700 billion Rupees ($10.76 billion) tookplace.

51% of Habib Bank Limited (HBL) shares were sold to the Agha Khan Fund for Economic Development in December 2004 for only 22 billion Rupees, its total assets were worthmore than 570 billion Rupees.

Another large bank, United Bank Limited (UBL), was soldfor only 13 billion Rupees.



Privatization

Country earned 417 billion Rupees ($6.41 billion) throughprivatization. , Claiming this was a record amount,incontrast to the 57 billion Rupees ($.870 million) earned by

civilian governments between 1991-1999. According to Anti-privatization Alliance Pakistan, a massive

1550 billion Rupees ($23.84 billion) worth of corruptionoccurred during this eight-year privatization push.



Privatization

Looking at the privatization of financial institutionsalone, a record looting of 700 billion Rupees ($10.76 billion) took place.

51% of Habib Bank Limited (HBL) shares were sold tothe Agha Khan Fund for Economic Development inDecember 2004 for only 22 billion Rupees, its total

assets were worth more than 570 billion Rupees. Another large bank, United Bank Limited (UBL), was

sold for only 13 billion Rupees.



Conclusion

Musharraf and his government did every possiblething to stay in power. Not managing fuel prices,exchange rate and alike until elections had an

adverse affect on our economy. His economy-related decisions are mostly manipulated and falsewhereas his political decisions were also causing agreat damage to Pakistan¶s economy. Musharraf

did not try to strengthen the industrial sector and hiskeen desire to privatize almost everything leftPakistan with no revenue generating asset

Documents

A Critical Evaluation of Pakistan Economic Performance