Recession in Pakistan

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Some argues that recession has not hit Pakistan at all and the current economic impasse can be attributed entirely to mismanagement of our economic managers. According statistics, manufacturing output is on the decline - one major indicator of recession.

Pakistani manufacturing sector accounted for 25.9 percent of Gross Domestic Product in 2006-07. Or, in other words, about a quarter of our total GDP was sourced to the manufacturing sector. Analysts who may allege that this decline, however insignificant, may well portend the start of a recession must note that there was a higher decline between 2004-05 and 2005-06: from 26.3 to 25.9 percent of GDP. Large-scale manufacturing declined from 13.4 percent to 13.3 percent of GDP between the two years, while small-scale manufacturing rose from 4.3 to 4.4 percent.

In 1991 public sector accounted for about 40 percent of total manufacturing value added and absorbed around 48 percent of gross fixed investment. The total value of public sector industrial output in 1991 was 36 billion rupees (in constant 1988 fiscal year prices), but pretax profits were only 1.3 billion rupees, reflecting the inefficiencies and overstaffing prevalent in these enterprises.

The government launched a privatization program in 1991. Majority control in nearly all public-sector enterprises was to be auctioned off to private investors, and foreign investors were rendered eligible buyers. The Musharraf era was marked by privatization of 166 units (January 1991 to February 2007). The take of the federal government from this was 475 billion rupees, a hefty 8.9 billion dollars.

According to the Economic Survey between July 2007 and February 2008 - the last months of the dying Musharraf regime - UBL's divestment of 25 percent shares through a GDR fetched 650 million dollars, hailed as the biggest book builder in Pakistan's history. Thus as a result of sustained efforts to privatize large-scale parasitical units the public sector continues to account for a significant proportion of industry even today. Be that as it may it is evident that the manufacturing sector did not decline significantly as a percentage of GDP.

This is endemic to Pakistan and therefore a decline in output raising fears of an onset of a recession cannot be attributed either to the global financial crisis or indeed the heavy subsidization of oil and products by the previous government; but to the failure to supply electricity, a critical input, to the manufacturing and farm sector. It is precisely for this reason that the International Monetary Fund (IMF) recommends even tighter fiscal and monetary policy measures in the months to come, recommendations that are the reverse of the usual prescriptions for recession, as a means to check inflationary pressures sourced to too few goods being produced domestically chasing too much money that was generated because of a burgeoning budget deficit.

The Musharraf government insisted that this was due to their investment friendly policies; however the fact that aid began to flow in the aftermath of 9/11 at unprecedented levels was perhaps a more critical ingredient of the growth rates achieved during the Musharraf era. The growth targets for the current year as well as in the following year are not high, i.e. under 3.5 percent; however, this growth rate is sufficiently significant to conclude that recession is unlikely in this country.

To conclude, our malaise is basic: an infrastructure base grossly inadequate to sustain even the existing output potential, a government heavily involved in manufacturing and contributing heavily to inefficiencies in the sector which, in turn, also reduces the tax revenue that can be realized from the manufacturing sector, and constant state intervention in pricing of commodities which is leading to artificial shortages and higher black market prices. At the same time the country is losing its battle with respect to providing education and health care facilities with the bulk of the annual budget allocated for servicing past debts, defense and non-development expenditure. The fault, as Caesar said to Brutus, is not in our stars or global recession but in ourselves that we remain a prisoner to underdevelopment.

Feroz Ahmed Bawany goal is to increase my knowledge and to understand the only civilized creations of Almighty Lord are HUMAN. He is a regular contributer to TRCB.com.

 

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