Why our economic performance has suffered

Budgets, development plans need to spend money on asset-building, refurbishing of decaying infrastructure.

Recently, the prime minister claimed that the government could steer the economic engine in such a way so as to obtain a growth rate of 3.4 per cent for the last two years. While the crafty rebasing of the GDP is a moot point, ours is still the lowest GDP growth rate in South Asia and is even lower than the 5.5 per cent GDP of sub-Saharan Africa.

What has caused this dip in Pakistan’s economic performance? Reasons can be attributed to the poor way in which the economic relations amongst the country’s citizens have been governed to the breakdown of the law and order situation and the decay of institutions. The cause of this poor performance can also be credited to the unique geopolitics of the region, with the much-empowered Deep State only adding to the complexities that Pakistan’s economy faces. The low growth that our economy has faced can also be linked to the lack of availability of credit for the private sector, which is instead gobbled up by the government to meet its non-developmental expenditures. Some analysts have attributed the staggeringly low growth rate to the inability of the ruling party to plan and execute reforms in state-owned enterprises such as the PIA and the Pakistan Steel Mills.

At the same time, the low growth performance also shows that the Planning Commission’s growth strategy has failed to deliver anything substantial. Any crafty economist can say that the strategy was not ‘fully’ implemented. However, the fact remains that the Planning Commission did not have a sound strategy to begin with and relied only on rehashing old ideas based on neoliberal economics.

Looking at the components of whatever little growth we have achieved in the past, it seems that the agriculture sector and more specifically the livestock and fishery sub-sectors, have actually been performing well for the last many years. However, the crop sector has consistently been shrinking despite an increase in support prices which has been associated with inflationary pressure on the food basket of the urban poor.

A two to three per cent growth rate is termed as the ‘natural rate of growth’, which can take place without any growth-inducing interventions by the state. So any pride that the government may express over the controversial 3.4 per cent GDP growth will be more for the purpose of meeting political goals, rather than it being a statement of economic progress.

It was argued in a recent seminar on the budget that the Public Sector Development Programme (PSDP), which forms the core of government expenditure, has become extremely politicised. Amongst the different criteria for selection of development schemes, one criterion for release of funds has turned out to be the location of the cities of Multan and Larkana. This is a blatant disregard of the rights of people of other cities while the real growth results of the expenditures meant for Multan and Larkana are yet to be seen.

Dr Kaiser Bengali, a renowned economist, argues that Pakistan should spend at least 10 per cent of its GDP on infrastructure development for the next 10 years. It should be spent on improving the country’s railways, ports and shipping, energy sector and the communication system. This will improve the business environment in the country. While research is needed in this area, a major reason for the higher GDP growth in Punjab compared with other provinces can be attributed to the emphasis that the Punjab government has put on spending on public infrastructure, ranging from transportation to education and health services.

The upcoming federal and provincial budgets and annual development plans need to spend money on physical asset-building and refurbishing of decaying infrastructure. Efforts also need to be made to facilitate the manufacturing sector, which can help eradicate poverty while creating jobs and generating positive externalities for the service sector as well.

Published in The Express Tribune, June 1^st, 2012.