Monday, October 11, 2010

Musharraf Coup Revived Pakistan's Economy and Reduced Poverty

On the 11th anniversary of General Musharraf's coup today, the dominant political rhetoric on the airwaves of Pakistan completely obscures Musharraf's daring rescue of the nation's economy from total collapse in 1999. Instead, Musharraf's enemies are focusing entirely on his missteps.

To set the record straight, let me quote from the current PPP government's letter it signed and sent to the IMF in 2008. Here is how it hails Musharraf's economic record without mentioning his name:

"Pakistan's economy witnessed a major economic transformation in the last decade. The country's real GDP increased from $60 billion to $170 billion, with per capita income rising from under $500 to over $1000 during 2000-07.....the volume of international trade increased from $20 billion to nearly $60 billion. The improved macroeconomic performance enabled Pakistan to re-enter the international capital markets in the mid-2000s. Large capital inflows financed the current account deficit and contributed to an increase in gross official reserves to $14.3 billion at end-June 2007. Buoyant output growth, low inflation, and the government's social policies contributed to a reduction in poverty and improvement in many social indicators". (see MEFP, November 20, 2008, Para 1).

In the 1990s, economic growth plummeted to between 3% and 4%, poverty rose to 33%, inflation was in double digits and the foreign debt mounted to nearly the entire GDP of Pakistan as the governments of Benazir Bhutto (PPP) and Nawaz Sharif (PML) played musical chairs. Before Sharif was ousted by General Musharraf in 1999, the two parties had presided over a decade of corruption and mismanagement. In 1999 Pakistan’s total public debt as percentage of GDP was the highest in South Asia – 99.3 percent of its GDP and 629 percent of its revenue receipts, compared to Sri Lanka (91.1% & 528.3% respectively in 1998) and India (47.2% & 384.9% respectively in 1998). Internal Debt of Pakistan in 1999 was 45.6 per cent of GDP and 289.1 per cent of its revenue receipts, as compared to Sri Lanka (45.7% & 264.8% respectively in 1998) and India (44.0% & 358.4% respectively in 1998).

The IMF has acknowledged that Pakistan became one of the four fastest growing economies in the Asian region during 2000-07 with its growth averaging 7.0 per cent per year for most of this period. As a result of strong economic growth, Pakistan succeeded in reducing poverty by one-half, creating almost 13 million jobs, halving the country's debt burden, raising foreign exchange reserves to a comfortable position and propping the country's exchange rate, restoring investors' confidence and most importantly, taking Pakistan out of the IMF Program.

Per Capita PPP GDP

Poverty in Pakistan decreased from about 34% to 17% and hunger went down with it during Musharraf years from 2000 to 2008, as reported by World Bank and IFPRI as lagging indicators. The global hunger index score, published annually by the International Food Policy Research Institute(IFPRI), is a number between zero and 100, with lower figure signifying less hunger.

While Pakistan's hunger index score improved over the last three year since 2008 from 21.7 (2008) to 21.0 (2009) to 19.1 (2010) and its ranking rose from 61 to 58 to 52, India's index score worsened from 23.7 to 23.9 to 24.1 and its ranking moved from 66 to 65 to 67 on a list of 84 nations. Given the lag in reporting, the GHI scores represent data from 2003 to 2008.

At 22.67% improvement in its hunger score since 1990, Pakistan has improved less than India's 23.97% reduction, explained by little or no progress in Pakistan during the lost decade of the 1990s under Bhutto and Sharif governments.

Since the return of the current PPP government with its replay of incompetence and corruption of the 1990s, economic growth is barely keeping pace with population growth, per capita gdp has decreased, prices of basic commodities have risen 3 to 4 times of the level in 2008, the Pakistani rupee has lost about 30% of its value against the US dollar, and the nation's economy is on IMF's life support as it was prior to Musharraf's coup.

The corrupt and incompetent politicians from the 1990s have crushed all of the hopes and dreams Pakistani voters yet again, and their faith in democracy is being sorely tested.

Related Links:

Haq's Musings
Musharraf's Economic Legacy

Pakistan: A Contrarian Investor's Paradise

State Bank of Pakistan Quarterly Reports
Ishrat Husain: Structural Reforms in Pakistan's Economy
Pakistan's Economic Performance 2008-2010

Incompetence Worse Than Corruption in Pakistan
Pakistan's Circular Debt and Load Shedding
US Fears Aid Will Feed Graft in Pakistan

Pakistan Swallows IMF's Bitter Medicine

Shaukat Aziz's Economic Legacy

Pakistan's Energy Crisis

Karachi Tops Mumbai in Stock Performance

India Pakistan Contrasted 2010
Pakistan's Foreign Visitors Pleasantly Surprised
The "Poor" Neighbor by William Dalrymple
Pakistan's Modern Infrastructure

Video: Who Says Pakistan Is a Failed State?
India Worse Than Pakistan, Bangladesh on Nutrition
UNDP Reports Pakistan Poverty Declined to 17 Percent

Pakistan's Choice: Talibanization or Globalization

Pakistan's Financial Services Sector

Pakistan's Decade 1999-2009

South Asia Slipping in Human Development
Asia Gains in Top Asian Universities

BSE-Key Statistics
Pakistan's Multi-Billion Dollar IT Industry

India-Pakistan Military Comparison

Food, Clothing and Shelter in India and Pakistan

Pakistan Energy Crisis

IMF-Pakistan Memorandum of Economic and Financial Policies


Anonymous said...

Well, then lets have another coup !!

Zardari/Gilani/Iftikhar-Muhammad-Chaudhry off with your head :)

Anonymous said...

brilliant stuff riaz

Kick out politicians NOW! and get the army.

Then after 10 years when mushy kicks the bucket/retires and you have Zia Haq 2.0 since the pak army is a lot lot more radicalized that it was when Haq took over you will clamour for political parties.

This sort of musical chairs is the exact reason why Pakistan is so unstable.

Riaz Haq said...

anon: "Kick out politicians NOW! and get the army."

I expect that ten years of consistent economic growth under an efficient government will get Pakistan ready for democracy, with much higher literacy, much lower poverty, much larger middle class and a smarter electorate and more middle class and competent leaders.

Anonymous said...

I expect that ten years of consistent economic growth under an efficient government will get Pakistan ready for democracy, with much higher literacy, much lower poverty, much larger middle class and a smarter electorate and more middle class and competent leaders.

Few things:

1.The army won't magnanimously step aside after 10 years.

2.The army's top leadership isn't as technocratic these days musharaff,talat masood etc were the tail end of the educated secular generals.The top brass in the current Paki army is mostly Zia era recruits.

3.Army-mullah-feudal nexus is very well entrenched this is the exact parasitic nexus whose back you have to break for Pakistan to emerge as a proper country.

The key to achieving rapid growth is to develop a good bureaucracy.

Anonymous said...

I expect that ten years of consistent economic growth under an efficient government will get Pakistan ready for democracy ...

Ahhh - the triumph of hope over experience.

Riaz Haq said...

anon: "Few things:

1.The army won't magnanimously step aside after 10 years.
2.The army's top leadership isn't as technocratic these days musharaff,talat masood etc were the tail end of the educated secular generals.The top brass in the current Paki army is mostly Zia era recruits. 3.Army-mullah-feudal nexus is very well entrenched this is the exact parasitic nexus whose back you have to break for Pakistan to emerge as a proper country."

1. History tells us that no army general in Pakistan has been able to rule for more than 10 years.

2. History shows that new civilian political leadership can emerge under military dictators. Examples include Bhutto under Gen Ayub and Sharif under Gen Zia.

3. History bears testimony that Pakistan's economy has continued to grow consistently at 6% or more a year since 1947, with the exception of the 1990s when it stagnated, and again since 2008, making Zardari and Sharif as the worst of the lot, and Pakistan needs to be rescued from them.

4. Musharraf cleansed the Pak military officer ranks of the religious fanatics in his multiple purges.

Riaz Haq said...

India ranks 67, far worse than Pakistan's ranking of 52 on the world hunger index 2010 report published recently, according to a Times of India report.

China is rated much ahead of India at the ninth place, while Pakistan is at the 52nd place on the 2010 Global Hunger Index, released by the International Food Policy Research Institute (IFPRI) in association with a German group Concern Worldwide and Welthungerhilfe.

In India, the high Index scores are driven by high levels of child underweight resulting from the low nutritional and social status of women in the country, the report pointed out, adding that India alone accounts for a large share of the world's undernourished children, the IFPRI report said.

India is home to 42% of the world's underweight children, while Pakistan has just 5%, it added.

Among other neighbouring countries, Sri Lanka was at the 39th position and Nepal ranked 56 by index. Bangladesh listed at the 68th position.

"The economic performance and hunger levels are inversely correlated. In South and Southeast Asia, Bangladesh, India, Pakistan and Timor-Leste are among countries with hunger levels considerably higher than their gross national income (GNI) per capita," the IFPRI report said.

"Undernutrition in the first two years of life threatens a child's life and can jeopardise physical, motor and cognitive development. It is therefore of particular importance that we take concerted action to combat hunger, especially among young children," the report stressed.

It further said that the global food security is under stress. Although the world's leaders, through the first Millennium Development Goal, adopted a goal of halving the proportion of hungry people between 1990 and 2015, "we are nowhere near meeting that target."

"The 2010 world Global Hunger Index (GHI) shows some improvement over the 1990 world GHI, falling from 19.8 points to 15.1 or by almost one-quarter. The index for hunger in the world, however, remains serious," it noted.

In recent years, however, the number of hungry people has actually been increasing. In 2009, on the heels of a global food price crisis and in the midst of worldwide recession, the number of undernourished peopled surpassed one billion, although recent estimates by the UN body Food and Agriculture Organisation suggest that the number will have dropped to 925 million in 2010, it added.

Read more: India ranks below China, Pak in global hunger index - The Times of India

Anonymous said...

Riaz, you love talking from both sides of the mouth. Between 1999 and 2010, India's export went up from 36US Billion Dollars to 180 USBillion Dollars and Pak's went from 18 to 36 USBD.
India's software exports went up from 1 USBD in 1997 to 60 USBD today and Pak went from 0 to 1 USBD.
All this happened when our Mushy uncle was ruling the most.

You can take solace in the fact that India has more poor than anyone else, but I can understand the pride of Indian middle class.

Rahul said...

The last comment of Riaz, shows his frustration, at his country's failure. We do not care about your statistics. i can easily gauge from the online Pakistanis that how frustrated they are currently. They are traumatized that there country is going backward and called terrorists while rest of the world is showering praise on Its neighbor.

Rahul said...

Ha ha ha...Pakistan wins only 5 medals and it is the 4rth most populous country in the world.

Riaz Haq said...

Some people continue to credit US aid to Pakistan for good economic performance during Musharraf years.

Let me remind them that the US aid flow has significantly increase in the last two years.

And the increased US aid has not made a damn difference, nor have dramatically increased foreign remittances from overseas Pakistanis in the last two years.

Why? Because the economy and the whole country is being terribly mismanaged by the incompetent and corrupt politicians who gave us the lost decade of the 1990s.

There is no substitute for competence, good policies and good governance.

Pavan said...

Thanks. Bangladesh will overtake India next year. Most Indians think
Bangladesh is a 'basket case' country! Pavan
PS Are you sure about the proportion of underweight kids in Pakistan?
The under five mortality rate should be much lower?

Riaz Haq said...


The IMR rate in Pakistan is about 73 versus 54 in India per 1000 live births, based on 2007 data.

But the number of underweight children is lower in Pakistan at 38%, vs India's 46% of the population.

It appear that there is not a strict correlation between weight and survival rate.

satwa gunam said...


Please relook at the number during musharaf period as it is somewhat not believable that a country can fall into trouble in two years time. Generally dictatorship shows the world the number what they want to show.

Generally a countries economy goes to dogs over a decade of misrule.

Further the problem could also be the non supportive usa with its usual bail out and aids

satwa gunam said...

world bank site give data at this point of time for 2000,2005,2006

Market capitalization of listed companies (% of GDP)
2000, 2005, 2006
9 42 36

Probably all is not that well with mush regime

Riaz Haq said...


You should read the LOI signed by Pakistan's finance minister Tarin and SBP governor Shamshad Akhtar sent to the IMF in Nov 2008 to understand the policy inaction that led to the balance of payments crisis, circular debt accumulation, flight of capital from loss of confidence after the PPP-PML coaltion took over.

You should also read the guest post by Pak economist Dr. Ashfaque H. Khan to get a sense of what brought about the economic collapse in Pakistan beginning in 2008.

As to your claim about the market cap under Mush as percent of GDP, why do you think it's bad? IT shows significant growth, and yet it remains a fraction of the GDP which is a god thing.

In fact, I think India's Mumbai Sensex market cap close to India's GDP should worry investors far more because it's a clear sign of overvaluation.

satwa gunam said...

Some more interesting comparison between india and pakistan as per world bank in 2006

fdi to gdp 3.35% 2.14%
external debt to
gdp 26.04% 14.05%
offical aid to
gdp 1.68% 0.15%

Pakistan get more than 10 times aid as a percentage of the gdp. Asbsolute number could be high in case of india.

Indian growth is more trigger by internal savings and pakistan is by more of fdi

India's external debt is 46% lesser than that of pakistan in extneral debt vs. gdp ratios.

satwa gunam said...


I could not upload the image which i made out of excel sheet. u can refer to the above url for the image.

Both the countries are experiencing increase in import in a more faster manner than the export.

However from 2005 india has started experience positive balance in the service sector. It has moved from -2.87 bn usd to 5.38 bn in 2005 and 11.23 in 2006.

However in the same period, pakistan service sector deficit has gone up from 0.83 bn of 2000 to 5.16 bn usd in 2005 and slightly moved up to 5.85 bn in 2006

Total deficit of both the country has increase. It has moved up from -2.66 to -18.74 in case of Pakistan between 2000 and 2006 and in case of India it was from 12.01 to 45.37 in the same period.

To bring perspective to the size of the country, comparison was made to the deficit to gdp. India stand at -4.87% where Pakistan stands at -14.70%

With the above data i would not know how mush has done a great job.

Riaz Haq said...

Here are some excerpts from a piece by David Pilling of Financial Times published recently:

(There have ben many a dire warning about Pakistan failing), yet Pakistan has survived. In its partial victories against Islamist militants it may even have made some kind of progress. It is all too easy to think of Pakistan as a failing – even a failed – state. But it might be better to see it as the state that refuses to fail.

To appreciate just how remarkable this is, cast your mind back to this dangerous year’s catalogue of fire and brimstone. First, following its victory in Swat, the army turned its attention on South Waziristan, bombarding militants in lawless areas bordering Afghanistan. Many considered that an important step, given the well-documented links between the Inter-Services Intelligence (ISI) spy agency and tribal militants, part of Pakistan’s quest for “strategic depth” in Afghanistan.

Second, and partly as a result of the army’s offensives, there has been a wave of counter-attacks on hotels, mosques and police stations. Last October, militants mounted a brazen raid on the supposedly impregnable headquarters of the 500,000-strong army. That led to alarm that men with beards and a less-than-glowing feeling towards America were getting perilously close to Pakistan’s nuclear arsenal.

Third, Pakistan has had to adapt to a dramatic shift in US policy towards Afghanistan. In December, President Barack Obama ordered a surge of 30,000 extra troops, a military intensification that has sent militants scurrying across the border into Pakistan. Worse from Islamabad’s point of view, the US president has committed to drawing down those troops from next summer, a retreat, if it happens, that would once again leave Pakistan alone in a nasty neighbourhood.

Fourth, the economic outlook remains precarious. Pakistan just about avoided a balance of payments crisis which, at one point, saw its reserves dwindle to just one month’s import cover. But respite has come at the cost of being in hock to the International Monetary Fund, which has extended some $7bn in loans. With tax receipts at a miserable 9 per cent of output, it is unclear how it will make ends meet.

As if these man-made calamities were not enough, Pakistan has been drowning in the worst floods in its history. At one point, no less than one-fifth of the country was under water.....

Remarkably it has not been. Why not? A partial explanation for Pakistan’s staying power is that it has become an extortionary state that thrives on crisis...

There are more benign explanations too. The strength of civil society has helped. Many refugees from the floods, like those from Swat, have found temporary shelter with the networks of friends and relatives that bind the country together. The army’s response to the floods has also underscored, for better or worse, the efficiency of the state’s best-run institution. Even the civilian administration, weak and discredited as it is, has clung on. If, as now seems plausible, Mr Zardari can survive, power could yet be transferred from one democratically elected administration to another for the first time in Pakistan’s 63-year history.

One should not overstate Pakistan’s resilience. The world is rightly alarmed at the mayhem that rages at its centre. But, if you care to look on the bright side, you might conclude that, if Pakistan can survive a year like this, it can survive anything.

Riaz Haq said...

Here is a Daily Times report on inflation in Pakistan:

In Pakistan, 2007, the rate of inflation was 12.5 percent, during 2006-07 it was 21 percent and in July-March 2010 the inflation has been 11.3 percent. The cumulative rate of inflation was 44 percent in three years, from September 2007 to September 2010.

The main reason of food prices inflation was the increase in wheat, petroleum products, electricity and gas responsible to an overall increase in prices. The rising interest rate, high remittances and depreciation of rupee against dollar also fueled the inflation. This situation directly hit the poor and increased poverty level in the country.

A shortfall in the production of some essential commodities also raised food prices. There are 13 food items in essential items’ list which also includes wheat and flour; sugar, poultry, mash pulse, meat, milk, tea, fresh vegetables etc, that account for almost 23 percent of the total weight in the Consumer Price Index (CPI). Prices of food items in general have made food dearer in Pakistan. For instance, the average price of sugar has risen above 41 percent, wheat prices by 17 percent, chicken 24 percent, beef 13 percent and onion prices by 64 percent since July 2008 over April 2009. With a 23 percent weight in CPI, the contribution of these few items to the overall CPI inflation was 18 percent.

Although the world price of sugar has fallen unexpectedly since its peak in January 2010, but it is still up 21 percent year on year (YoY) basis. Dairy prices, on the other hand, have continued to raise their upward march.

Global price increase enhanced inflation sharply and Pakistan has no exception that has affected both globally as well as domestically. India’s food price inflation soared to 19.2 percent in December 2009, 16.7 percent in March. Similarly, food inflation in Bangladesh rose from 3.3 percent in July 2009 to 10.9 percent in February 2010.

Poverty ratio in Pakistan is rapidly rising due to economic slowdown; high inflation and reduction in subsidies compel 40 percent people of the country to lives around the poverty line, as per SBP estimates.

The country’s population has jumped to 184 million in 2010, 119 million in 1990, of which 73 million Pakistanis have fallen below poverty line, SBP said. The poverty level during 2010 rises by 4 percent to 40 percent, from 36.1 percent in 2009.

In the case of Pakistan, the increase in domestic prices of essential commodities remained relatively quiet as compared to the international price movements. However, since January 2010, international prices for some of the commodities like petroleum have fallen more rapidly than in Pakistan.

Riaz Haq said...

Here is an excerpt fom an interesting Op Ed by a Korean commentator Ha-Joon Chang published in the Guadian that exposes the hypocisy of "Washington Consensus" pushed by the West and IFIs like the IMF on developing nations:

An obvious place to look for inspiration is the recent history of the host country. In my lifetime Korea has lived through one of the greatest development miracles – half a century ago, its annual per capita income was around £50, less than half that of Ghana at the time. Today, it stands at £12,000, putting it on a par with Portugal and Slovenia. How was this possible?

Korea of course did things that most people agree are important for economic development, such as investment in infrastructure, health and education. But on top of that, it also practised many policies that are now supposed to be bad for economic development: extensive use of selective industrial policy, combining protectionism with export subsidies; tough regulations on foreign direct investment; active, if not particularly extensive, use of state-owned enterprises; lax protection of patents and other intellectual property rights; heavy regulation of both domestic and international finance.

The G7 was always remarkably reluctant to recommend these "heterodox" policies and insisted that the "Washington consensus" package of opening up, deregulation and privatisation was the right recipe for everyone. When confronted with the Korean case, Washington consensus supporters tried to brush it off as an exception. However, the history of take-offs in most of the G7 countries – especially Britain, the US, Germany, France and Japan – is far closer to the Korean model than is commonly thought. The "unorthodox" policies used by Korea and almost all of today's rich countries need to be seriously considered in any discussion on development options.

Will things change with the launch of the G20 development agenda? An examination of the Korean government's proposals suggests we can only muster cautious optimism. Korea today wants the G20 to focus on a lengthy shopping list of development issues: infrastructure; private investment and job creation; education; greater access to rich country markets by poor countries; more inclusive finance; building resilience to financial or weather shocks; food security; governance. That is a pretty good start. The Koreans reject the "one size fits all" approach of previous decades in favour of what they call a "dynamic iPhone model" – a set of development apps for every occasion, drawn from successful approaches in different countries.

Riaz Haq said...

Here's Dr. Ashfaque H. Khan, Dean of NUST Business School, opposing SBP's latest 0.50% discount rate hike in Pakistan:

...another objective of tightening monetary policy is to discourage the government from borrowing heavily from the SBP to finance fiscal deficit. Government borrowing from the SBP is the main source of the surge in reserve money growth. During the last four-and-a-half-months, the government has borrowed Rs265 billion, against Rs16 billion in the corresponding period last year. As a result, reserve money has grown by 18.4 per cent, against 9.7 percent last year.

Perhaps the SBP believes that a rise in discount rate will discourage the government from borrowing from the central bank. The SBP has forgotten that by raising the discount rate by 100 basis points in the current fiscal year, it has increased the interest payment of the government by almost Rs50 billion. Thus, everything being held constant, the budget deficit will increase by Rs50 billion. Hence, more deficit, more borrowing, a further hike in the discount rate, further increase in interest payment, and further increase in budget deficit. Do we want to create a vicious circle?

Perhaps the SBP believes that by increasing the discount rate it will encourage commercial banks to participate actively in auction of government debt. In other words, it will shift government borrowings from the SBP to scheduled banks. Government borrowings from the scheduled banks stood at Rs76 billion, against Rs164 billion in the same period last year. Perhaps the scheduled banks are deliberately avoiding participation in the auction to the extent they should have been. They have thereby signalled that they need a higher interest rate.

Should the SBP, as monetary authority, be guided by the animal spirit of the scheduled banks, or should it be in the driving seat? Perhaps the governor of the SBP would like to be guided by the scheduled banks. I personally believe that the hike in discount rate was unwarranted and the status quo should have been maintained. The hike was an act of overreaction and could have been avoided.

Riaz Haq said...

Pakistan's top tax man paints gloomy picture of economy, reports The News:

KARACHI: Chairman of the Federal Board of Revenue Salman Sidiqqui has said that the government cannot provide a bailout to the industrial sector as the regime is facing an unannounced economic emergency.

He stated this while addressing a ceremony under the aegis of the Karachi Chamber of Commerce and Industry here on Saturday.

Talking to the media on the occasion, the FBR chairman said that the government was trying to curtail loans to control inflation.

The current amount of loans stands at Rs140 billion not 500 billion rupees, he added.

He said in the first phase, the Islamabad Electric Supply Company (Iesco) would be privatised, adding that the economic sector was facing a crisis and the government could not meet its expenditures.

He questioned how it could be possible to provide resources to the business community in these circumstances.

The FBR chairman pointed out that no one would come forward from abroad to provide a bailout package for the restoration of the economy.

"We should resolve our problems and every citizen should be brought into the tax net," he added.

The FBR chairman suggested that a ban had to be imposed on the government from borrowing from the State Bank.

Policymaking is not the responsibility of the FBR but its function is its implementation.

He advised tax defaulters to contact the actual department for the solution of their problems. The FBR is working for the welfare of various departments.

It is not difficult to overcome the issue of economic deficit through local resources, he underlined.

To a question, he said that the economic downfall started after the government borrowed loans from banks.

Salman Sadiqqui urged businessmen not to attach any expectations to the government as it was facing economic problems.

He suggested traders should set up representatives of the business community for the solution of their problems regarding tax.

On this occasion, a KCCI member, Qasim Teli, said that traders were facing several problems about tax, adding that the traders wanted to pay tax but the policy of the government should be clear in this regard.

The government should improve the tax system. He demanded an end to corruption in the FBR.

Referring to various complaints on export refund claims, the FBR chairman said that a committee of the KCCI should be formed by the chamber office-bearers, who could help the board in resolving the claims of exporters.

"I assure you that all the refund claims will be made expeditiously as compared to the past and non official malpractices will be tolerated," he added.

The FBR chief said that the Board's Revenue Advisory Council will be asked to have a working relationship with the KCCI and further gave an assurance to the business community members that functions of the FBR will be restructured after consultation with the members of the chamber.

Riaz Haq said...

There seems to be consensus developing among Pakistani economists that "prompt measures needed to control rising inflation", according to a report in Daily Times:

LAHORE: Pakistan is fast heading towards higher inflation and to overcome this grim scenario; improvement in governance coupled with a drastic cut in expenditure and revenue generation is crucial.

The doom and gloom scenario needs an urgent handling. Good governance, good policies, good institutions, good macroeconomic management are the drivers of economic growth that have gone dormant for quite some time. This was the crux of the speeches delivered at Economic Dialogue 2011 held at Lahore Chamber of Commerce and Industry on Tuesday. Senior economist Dr Akmal Hussain said the country is facing its gravest economic crisis in history after 1971. He said the economy is in deep recession, poverty along with high inflation is a recipe for disaster.

Unfortunately, he added, the government has zero fiscal space. He warned that Pakistan was heading towards higher inflation if immediate improvement in governance is not accompanied with cut in expenditure and substantial increase in revenue.

The former WB Executive Abid Hassan said that the institutional decay has now started taking its toll and the government should take appropriate measures on emergent basis to stop this decay. He said that with every passing day the country is going deeper and deeper into the economic mire. “Today we have reached a situation where even an economic stimulus would not work. The government should concentrate on tax collection and controlling unnecessary expenditures. Unless and until these two measures are not taken, the economy would not be able to be back on rails,” he said. The PIDE Vice Chancellor Dr Rashid Amjad said that the present day doom and gloom scenario could be changed by overcoming the acute energy shortage being witnessed by the country. The issue of circular debt needs to be taken care of by those sitting at the helm of affairs. “PSDP has a multiplier effect on the employment and economy. It should not be cut,” he said.

Former chief Economist Planning Commission Dr Pervaiz Tahir blamed the political chaos for our economic woes and termed the dictatorship democracy cycle as mother of all ills.

Energy sector expert Munawar Baseer, ex Executive committee member Almas Hyder and LCCI President Shahzad Ali Malik while appreciating the input provided by the economists said that most of the issues and challenges faced by the country are more of political. The political leadership while realizing the sensitivity of the situation should come up with a solid solution with close coordination with the chambers. “The policies are being made in isolation without the consultation of real stakeholders and that’s why the economic situation today has become more complex and directionless,” he said. The speakers said that the business community should be involved for the sake of correct decision-making.

They urged the government to evolve a more realistic and pragmatic framework by putting an end to inter-provincial disparity and the disparities within the province. The government should re-do its priority list and concentrate on the few areas that come on the top of that priority list.

It is very unfortunate, the speakers said, that the country has become the most inhospitable for both the local and the foreign investors for security reasons.

“Our inability to reach a consensus on water issue and inability to tap hydrocarbon potential of Balochistan has virtually pushed us to the wall,” they said. staff report

Riaz Haq said...

Here's an Express Tribune story on a discussion at Inst of Business Admin in Karachi, Pakistan:

A vigorous difference of opinion among technocrats, economists and corporate leaders on a number of socio-economic issues was witnessed during an interactive session held at the Institute of Business Administration (IBA) on Saturday. And at the end it was unclear whether democracy was the answer, or a dictatorship, as advocates for both arguments came up with pretty convincing logic.

Speaking at the session organised by IBA in collaboration with Blinck, a youth resource group, under the title of “New Year Resolutions for the Economy of Pakistan,” panellists candidly expressed disagreements over the questions of foreign aid, democracy and the interplay of policy-making and implementation at the national level.

“Many people think that a non-democratic set-up is a panacea for the economic problems of Pakistan. They’re wrong. A non-democratic government is not sustainable,” said Ishrat Husain, former governor of the State Bank of Pakistan, who is currently serving as dean and director of IBA. “Democracy is slow and messy. It takes two steps forward and four steps backwards. Yet it’s the only option. The democratic process shouldn’t be interrupted.”

Husain said military regimes do make an extra effort in the beginning to improve the economy because they have not yet developed a constituency of their own. “But later on, they start making compromises.”

Claiming that a democracy needs low poverty and high literacy rates to prosper, Gillette Pakistan CEO Saad Amanullah Khan said Pakistan had only two eras of development: first, in the early 1960s, and second, during the first three years of the Musharraf government. “I don’t care if a dictator is there as long as he revamps the economy,” Khan said.

He said that the idea of a government led by technocrats that could bring the economy back on its feet had its relative merits. Khan emphasised the need for adopting a national vision for long-term growth, adding that the entire nation should work towards its realisation. “Go to Proctor & Gamble or Gillette, and they’ll tell you their five-year goals in detail. But ask a government representative what the vision for Pakistan is for the next five years, you won’t get any definite answer.”

Disagreeing with Khan, Husain said Pakistan did not need any more “visions,” as the problem existed in their implementation only. “The country is full of pious documents. These are beautifully written policy papers that nobody reads. We all agree on the substance of policy, but the implementation is the real issue.”

Responding to a question, former Asia editor for The Economist Simon Long said it was wrong to attribute Pakistan’s dismal economic performance of six decades to its culture or laid-back attitude to work. He said that 35 years ago people often assumed China’s poor economy was a consequence of Confucianism. He said it was now obvious that Confucianism had nothing to do with the slow growth in the economy of China.

Talking about Pakistan’s economic indicators, Long said an economy with a tax-to-GDP ratio of less than 9% was not sustainable. He said it was hard for him to understand how Pakistan’s economic managers would bring down the fiscal deficit in next two to three years.

In response to the comment of a business student that Pakistan should stay away from all kinds of foreign aid and assistance to achieve self-reliance, Husain said the assumption that the Pakistani economy depended on US aid to survive was wrong. “Isolationism won’t solve our problems. Transfer of knowledge and technology is important. You’ve to be outward-oriented.”

Riaz Haq said...

Pak threat to Indian science

Hindustan Times

Pakistan may soon join China in giving India serious competition in science. “Science is a lucrative profession in Pakistan. It has tripled the salaries of its scientists in the last few years.” says Prof C.N.R. Rao, Chairman of the Prime Minister’s Scientific Advisory Council.

In a presentation to the Prime Minister, Rao has asked for a separate salary mechanism for scientists. The present pay structure, he says, is such that “no young technical person worth his salt would want to work for the Government or public sector”.

He adds, “You needn’t give scientists private sector salaries, but you could make their lives better, by say, giving them a free house.”

Giving his own example, he says, “I have been getting a secretary’s salary for the last 35 years. But I have earned enough through various awards.

But I can raise a voice for those who aren’t getting their due.” Last year, Rao won the prestigious Dan David Award, from which he created a scholarship fund. So far, he has donated Rs 50 lakh for scholarship purposes.

The crisis gripping Indian science seems to be hydra-headed. “None of our institutes of higher learning are comparable with Harvard or Berkeley,” points out Rao. The IITs, he says, need to improve their performance: a faculty of 350 produces only about 50 PhD scholars a year. “That’s one PhD per 5-6 faculty members,” says the anguished Professor.

Rao fears that India’s contribution to world science would plummet to 1-1.5 per cent if we don’t act fast. At present, India’s contribution is less than three per cent. China’s is 12 per cent.

“We should not be at the bottom of the pile. When I started off in the field of scientific research at 17-and-a-half, I had thought that India would go on to become a top science country. But now, 55 years later, only a few individuals have made it to the top grade,” he laments.

Riaz Haq said...

Here's a News report of losses at sta6e-owned Pakistan Steel Mills:

The Federal Cabinet that met here on Wednesday with Prime Minister Yousaf Raza Gilani in the chair turned down the loss making Pakistan Steel Mills’ (PSM) request for Rs9 billion to bail it out of financial crisis.

PSM, a few days ago, had moved a summary to the federal cabinet through the Ministry of Production to seek a Rs9 billion bailout package from the government as it was in severe financial crisis; and the Mills was running below 20 percent of its capacity. The cabinet deferred the Mills request until the next meeting of the cabinet.

It is worth mentioning that PSM remained a profit-making entity for seven years, from 2000 to 2007, but as the PPP-led coalition government came into office, the entity started accumulating billions of rupees losses and continues to nosedive. The Mills is spending about Rs1.2 billion a month under different heads, whether it is making profit or raking up losses. The giant holds a constant burden of 21,000 employees despite suffering from low productivity.

The Ministry of Production is also now distancing itself from this politically sensitive entity and believes that the Mills is more in control of the Cabinet Committee on Restructuring of State-Owned Enterprises, headed by the Finance Minister Dr Hafeez Sheikh, well-placed sources told The News.

Interestingly, last year in November, the federal minister for production Chaudhry Anwar Ali Cheema also gave a blatant statement by calling the Mills “nothing but a burden on the economy of the country” and had advised the government that it is better to get rid of it rather than feeding it with billions of rupees every year.

Official sources, while giving a blue print of the Mills performance, said that during 2007-08, PSM production attainment stood at 82 percent of its capacity utilisation and after that, it took a declining course to 64 percent in 2008-09, 40 percent in 2009-10 and 35 percent in 2010-11.

This year too, due to shortage of raw material including iron ore and coal, the Mills is running on less than 20 percent of its capacity.

As far as the sale of PSM products is concerned, it was recorded at Rs42.938 billion in 2007-08 and has been on the decline since then, with Rs34.340 billion in 2008-09, Rs23.832 billion in 2009-10 and Rs27.379 billion in 2010-11.

The last time PSM had fetched Rs2.38 billion in profit was in 2007-08, while after that it continuously racked up losses. In 2008-09, its losses were 26.53 billion in 2009-10 it was Rs11.52 billion and in 2010-11 it was Rs11.49 billion.

According to PSM data, during the first quarter (July-September 2011-12) it accumulated losses of about Rs4.3 billion.

Riaz Haq said...

Here are excerpts of a Nature magazine article on higher education support in Musharraf years:

Despite the problems, science has been flourishing in Karachi and other Pakistani cities, thanks to an unprecedented investment in the country's higher-education system between 2002 and 2008 (see 'Rollercoaster budget'). As funding increased more than fivefold in that time, new institutes focusing on proteomics and agricultural research sprouted, and the University of Karachi's natural sciences department rose from nowhere to 223 in the 2009 QS World University Rankings.
The surge in higher-education investment occurred after the rise to power of General Pervez Musharraf in 1999, who as leader of the army had led a low-key coup d'état and installed himself as de facto president. Musharraf was a liberal progressive who hoped to modernize Pakistan. "It was a moment in Pakistani history that now seems so distant," says Adil Najam, an expert in international development at Boston University in Massachusetts.

With the economy booming in the early 2000s, Pakistani academics sensed an opportunity. Higher education had never had much popular support in the country, where literacy hovers at about 50%, but in Musharraf they saw a champion. In a series of reports, Najam and others made the case that if the nation could mobilize its universities, it could transform from a poor agricultural state into a knowledge economy (see Nature 461, 38–39; 2009). The group called for a new Higher Education Commission (HEC) to manage the investment, as well as better wages for professors, more grants for PhD students and a boost in research funding.
Rahman, a chemist at the University of Karachi and, at the time, the minister for science and technology, enthusiastically set out to overhaul the nation's universities. With Musharraf's support, annual research funding shot up 474% to 270 million rupees (US$4.5 million in 2002) in the first year alone. The HEC set aside money for PhD students and created a tenure-track system that would give qualified professors a monthly salary of around US$1,000–4,000 — excellent pay by Pakistani standards.

Rahman's strong scientific background, enthusiasm for reform and impressive ability to secure cash made him a hit at home and abroad. "It really was an anomaly that we had a person of that stature with that kind of backing," says Naveed Naqvi, a senior education economist at the World Bank, based in Islamabad. "Atta-ur-Rahman was a force of nature."
Between 2003 and 2009, Pakistan churned out about 3,000 PhDs, roughly the same number awarded throughout its previous 55-year history. More than 7,000 PhD students are now in training at home and abroad. Meanwhile, scientific research publications have soared from roughly 800 in 2002 to more than 4,000 in 2009 (see 'Publishing power')...

Hopewins said...

Dr. Haq,

Although I am not always successful, I nonetheless try to keep an open mind at all times whenever I hear an interesting view that I might not share.

In this light, I must say that I found it interesting to hear your view that Musharraf's regime was responsible for the dramatic growth in Pakistan's Economy. Therefore, I examined this view further and looked at the data to see how much correlation could be inferred.

Please look at the CRITICAL WINDOW of data from 1993 to 2011--

Here are the observable facts:
(1) Pakistan suffered from low growth from FY 1992-93 through to 2002-03 (average 3.5%).
(2) Pakistan then accelerated into high-growth mode from 2003-04 through to 2007-08 (average 6.5%)
(3) Pakistan then got hammered by the global crisis in 2008-09 with growth of 1.6%.
(4) Pakistan then recovered but continued to limp from 2009-10 through to present (average 3.0%)

(A) Bhutto/Sharif Merry-go-round FY from 1992-93 through to 1998-99 (7 years) yielded average 3.5%
(B) Musharraf Army Rule Part-I from 1999-00 through to 2002-03 (4 years) yielded average 3.5%
(C) Musharraf Army Rule Part-II from 2003-04 through to 2007-08 (5 years) yielded average 6.5%

So now the question is this: Was Mush/Army rule responsible for the rapid increase in growth rate in the 4-5 year window between 2003 and 2008? Or was it just a global/regional phenomenon that had little to do with Mush/Army rule?

Your argument is essentially that it was the former. I would like to propose that it was actually the latter.

To see my side of the argument, consider the corresponding data for Bangladesh in the CRITICAL WINDOW of data from 1993 to 2011--

Here are the observable facts:
(1) Bangladesh showed moderately-good growth from FY 1992-93 to 2002-03 (average 4.75%).
(2) Bangladesh then accelerated into high-growth mode from 2003-04 to 2007-08 (average 6.25%)
(3) Bangladesh was then lightly affected by the global crisis in 2008-09 with growth of 5.75%
(4) Bangladesh has since continued to grow from 2009-10 through to present (average 6.00%)

(A) As we can see, the results of the FIRST 4-5 years of Mush/Army were not all that different from the results of the Bhutto/Sharif Merry-go-round in the preceding 6-7 years.
(B) In addition, the burst of growth that Pakistan saw in the SECOND 4-5 years of Mush/Army Rule Part II was replicated even in Bangladesh.

So I would argue that Mush/Army rule may have had little to do with the burst of growth we saw in the middle of last decade. It seems to have been a global/regional phenomenon having to do with the massive glut of savings from East Asia being recycled by Western Investors during the credit bubble years.

The fact that Bangladesh seems to have recovered somewhat from the global credit crisis whereas our country is still struggling can be attributed to two clear differences:
1) Bangladesh now has a much better business-image vis-a-vis our country in terms of the perception of terror/violence/instability.
2) Bangladesh has a much higher domestic savings and internal investment rate and is not as dependent on outsiders as our country. Incidentally, we note this collapse in domestic savings rates happened during of Mush/Army Rule Part II.

I could be wrong, as this is merely something on which we should all ruminate.

Thank you.

Riaz Haq said...

Here's ET on management of Punjab development budget under Sharifs:


The Punjab government has spent just Rs70 billion of its Rs250 billion development budget for fiscal 2012-13 in the first seven months of the year, around half of it in Lahore alone, The Express Tribune has learnt.

Under finance rules, the Punjab government should have spent around Rs145 billion on development by the end of January, but had only spent Rs70 billion. Of this, Rs34.19 billion was spent on projects in Lahore, the vast majority of it, Rs31 billion, on the Metro Bus Service.

A senior Finance Department official said it was normal for utilisation of the Annual Development Programme (ADP) to remain low in the first six months of the financial year, and for spending to pick up in the remaining six months. He said that the low utilisation was due to the poor financial position of the province.

Last year, the Punjab government utilised only Rs150 billion of the Rs220 billion ADP presented for 2011-12.

In Lahore in 2012-13, apart from the spending on the Metro Bus Service, the Punjab government has spent Rs1.65 billion on the Kalma Chowk underpasses and Rs540 million on the Model Town underpass. Another Rs1 billion came out of the provincial kitty for the purchase of 100 buses, originally meant to be plied on the MBS corridor, but later given to girls colleges.

Other notable expenses included Rs4 billion for the procurement of 100,000 laptops, which are being handed out to students who perform well in exams. The Energy Department spent Rs2.5 billion on solar lamps, being handed out to 240,000 students under the Ujala programme.

Around Rs1.447 billion has been spent on the Pirwadhai Mor underpass and flyover project.

Another Rs1.25 billion has been spent on the Abdullahpur underpasses in Faisalabad, which involved the construction of three underpasses beneath the Tariqabad bridge leading to Chak Jhumra Road.

Riaz Haq said...

Here's an ET report on social sector development during Musharraf years:

According to the report’s HDI list, between 2000 and 2007, which roughly corresponds with General Pervez Musharraf’s regime, the Human Development Index rose 18.9 per cent — an annual average of 2.7 per cent.

From 2007 to 2012 it only went up by 3.4 per cent, just under 0.7 per cent per annum. Somehow, things got even worse in the last three years of that time frame, with HDI increases crashing down as low as 0.59% — a negligible average annual increase of under 0.20 per cent.

The 2013 Human Development Report “The Rise of the South: Human Progress in a Diverse World” is instrumental in the context of Pakistan, especially given the challenges faced today due to poor policy choices that have been confronted in the report.

Meeting a small group of journalists here, Marc André Franche, UNDP Pakistan’s Country Director launched the report and said it is important for what it says and there are lessons to be learnt from countries with preconditions similar to Pakistan.

Riaz Haq said...

Here's a News Op Ed by Dr. Ata ur Rehman Khan on Musharraf's time in office:

In the agricultural sector a number of important irrigation projects were initiated. The Diamer Bhasha Dam was launched. The Mangla Dam was raised by 30 feet increasing 2.9 maf water storage capacity and 100MW electricity. A number of new dams and canals were built (Mirani Dam for Balochistan, Subukzai Dam for Balochistan and Gomal Zam Dam for KP; Kachi Canal from Taunsa to Dera Bugti and Jhal Magsi to irrigate 713,000 acres of barren cotton producing land, the Thal Canal for Punjab, Rainee Canal for Sindh).

Overall three million acres of barren land were brought under cultivation. The Right Bank Outfall Drain (RBOD) was constructed through Sindh, thereby saving Indus River and Manchar Lake (Sind) from pollution. The steps taken led to an increase in wheat production from 14 million tons to 22 million tons, and increase in cotton production from nine million bales to 13 million bales.

Price control was exercised on essential items. The prices of edible household items (flour, naan, milk, tea, sugar, meat, vegetable oil etc) have tripled or quadrupled in the last five years. A rotational loan system was introduced through banks for poor farmers and loan facility for farmers increased from Rs35 billion through ZTBL only, to Rs160 billion from all other private banks.

Overall 2900MW of electricity was added to national generation capacity. The new energy projects initiated included the Ghazi Barotha hydro electricity project (1600MW), the Chashma-II nuclear electricity plant (300MW). The Neelum-Jhelum hydroelectricity project was initiated (1800 MW), the Satpara Power project in Skardu, and the Naltar power project in Gilgit.

A true revolution was brought about in the telecommunications sector. The number of mobile phones increased from 600,000 in the year 2000 to over 7 crore in 2006. Tele-density was increased from 2.9 percent to over 70 percent, and millions of jobs were created in the telecom sector. The IT sector also saw a phenomenal growth with internet connectivity spreading rapidly, particularly during 2000-2003 from 40 cities to over 2000 towns of Pakistan.

Fibre optic connectivity increased from 30 cities to over 1500 towns of Pakistan in the same period. The bandwidth cost of two megabytes was reduced sharply from $86,000 to $3,000 per month. Pakistan’s first satellite PakSat 1 was placed in space. Industry prospered as never before and industrial growth was in double figures throughout the nine-year period.

A revolution was brought about in the higher education sector with the establishment of the Higher Education Commission. The annual allocation for higher education was increased from only Rs500 million in 2000 to Rs28 billion in 2008, thereby laying the foundations of the development of a strong knowledge economy. Student enrolment in universities increased from 270,000 to 900,000 and the number of universities and degree awarding institutes increased from 57 in 2000 to 137 by 2008.

This rapid transformation deeply worried India and a detailed presentation was given to the Indian prime minister on July 22 about the dramatic progress in Pakistan.

A number of steps were taken to strengthen democracy at the grassroots. A large number of new TV channels were allowed and the media given full freedom. The local government system was launched to empower the people through a third tier of government. Women were empowered politically through reserved seats at all tiers of government. Minorities were provided with the system of joint electorate. ....

Riaz Haq said...

Ayaz Amir's 1999 Op Ed in Dawn:

I have drunk deep of joy and shall taste no other wine tonight. -Shelley

I can scarcely believe it. The clouds have lifted and sunny uplands beckon from afar. And although only the gods can tell whether enough will happen to prolong this mood, while it lasts it is exhilarating.

Bliss was it in that dawn to be alive,
But to be young was very heaven.

As I scan in the papers the mug shot of the Reverend Nawaz Khokhar - formerly a PML(N) grandee, now lately of the PPP (what exalted company our political parties keep) - being led away by an army posse, and as I read the names of the sleek cats caught in the first flush of the army's crackdown on those of the good and the great who have brought the country to its present sorry pass, and indeed down to its very knees, my heart, withered and woebegone till yesterday, cracks with joy even if I do not have Shelley's excuse (methinks a pair of comely arms) for being intoxicated.

Play on Vajpayee and to the flourish of fife and drum come out more stoutly in defence of your co-signatory to the Lahore Declaration (whither has that piece of parchment gone?), the sadly incarcerated Mian Nawaz Sharif who slipped while trying to read new meaning into the Leninist concept of the balance of forces. The Muslim League, its wits still befuddled, has yet to catch on to Vajpayee's tune. With friends like the Indian prime minister, Nawaz Sharif will stand in need of no enemies.

Consider the transformation worked by a mere 24 hours. Cynicism and despair entrenched so deeply in the Republic. And yet what it takes dissipate their malevolent influence is just a show of unabashed will and sincerity which have been vouchsafed by the dramatic swoop against the first batch of well-heeled conmen who have rooked the nation's finances. Who are amongst the first caught? Two Saigols, a Leghari, a Saifullah, an air marshal (no less) and several others of the same ilk. To ears used to hearing weak porridge being churned in the name of accountability this is thundering music. There is also a list of distinguished absconders, including our shrill princess, Ms Bhutto, and Grand Admiral Mansoor-ul-Haq. Again music to jaded ears. The Grand Admiral was the counterpoint to that civilian admiral, Amer Lodhi, who reportedly swung the famous submarine deal during the time shrill princess was inflicting herself for the second time on the country. When will the veil be lifted on that game of high-class poker? Only the oracles can say.

Meanwhile, it will be no small cause for rejoicing if as a result of the latest events we see the last of Ms Bhutto as a political redeemer. If there is one exit this country needs, it is hers. If it's any consolation to her, the greatest beneficiary of this will be her own party which may possibly breathe again if rid of her iron dictatorship. There will of course remain the matter of Ms Bhutto's articles in the press. But after being declared an absconder I think even from those there should be some relief.

Is it not a sign of the times that even the Chaudries - of Gujrat, that is - have begun to bleat? Even if I may not want to lay it on too thick as far as they are concerned (since the Chaudries include my former speaker, Ch Pervez Ellahi), it is hard not to notice that when they say, as they said vociferously at a press conference in Islamabad the other day, that they are not defaulters, they want the entire nation to plunge into a bout of amnesia and forget that after the Sharifs they profited the most from the industrial revolution that got going when that commander of the faithful, General Zia-ul-Haq, came to power.