Looking ahead: Economy on track‘towards steady growth’

Failure to reform tax system, solve energy crisis can squander gains.

LAHORE:

The country’s economy has grown over the last year. A foundation has been laid for to achieve stable growth, said Lahore School of Economics rector Dr Shahid Amjad Chaudry on Wednesday. He was speaking at the inaugural session of the 7th Annual Conference on Management of Pakistan’s Economy.

He said an increase in agricultural output and corporate profits accounted for the growth of national economy in the outgoing fiscal year. Dr Chaudhry suggested that left alone the country’s exchange rate would automatically adjust to the market.

LSE associate professor Azam Chaudhry also supported the view that the economy was on track. He said investment was growing in private sector.

Pakistan Institute of Development Economics’s Dr Rashid Amjad said that growth in national production needed to be sustained for several years to achieve a stable growth rate. He said the labour force was growing at three per cent per annum. He said that unless growth rate of economy improved quickly, unemployment and poverty would increase.  He mentioned three recent decisions that he believed had damaged the economy –raise in wheat prices, the assumption in the National Finance Commission award that tax to GDP ratio would rise from nine to 15 per cent and the 50 per cent raise in government employee’s salaries.

Michigan University’s Dr Inayat Mangla warned that a failure to reform the economy could jeopardise the recent improvements. He highlighted stagflation, budget and current account deficits and energy crisis, political unrest and terrorism as the problems needing immediate attention. He said the growth witnessed recently could be sustained if the government succeeded in implementing general sales tax, restructuring public enterprises and solving the energy crisis. Dr Mangla earlier said the country’s economy had seen rapid growth during the three military regimes. This, he said, was on account of a rise in foreign aid and remittances.

In the session on financial sector reforms, PIDE’s Dr Idrees Khawaja said monetary policy should be based on statistics derived from intensive research. He pressed for higher savings to counter possible setbacks from a decline in government’s policy rate might have on the economy.

Shabbir Ahmad gave a report on the reforms in the banking sector from 1985 to 2005. He said that five banks – National Bank of Pakistan, Habib Bank Limited, United Bank Limited and Muslim Commercial Bank and Allied Bank – held 62 per cent of the financial market’s share. He said his research showed that the costs of these banks were more than the standards recommended for them. Advisor to the President Dr Ashraf Janjua said the country had liberalised its economy, specially the capital market, over the past years. He said foreign investment could be withdrawn very easily today. This, he said, could threaten economic stability.

Besides Pakistan, economists from Sri Lanka, England and the United States will speak at the conference.

Other speakers on Wednesday’s sessions were  Jamshed Y Uppal of Catholic University of America, Washington, DC; Naveed Hamid of  LSE’s Centre for Research in Economics and Business; Abid A Burki of Lahore University of Management Sciences; Irfan ulHaque of South Centre, Geneva, and State Bank director Hamza Ali Malik.

Published in The Express Tribune, May 5^th, 2011.