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Economic Challenges Of Pakistan

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Challenges To Economy Of Pakistan:

Low Domestic Savings:

Out of every hundred rupees of our national income, 85 rupees are consumed and only 15 rupees are saved, which means that the amount of money which is available to invest for economic growth and development is too inadequate in relation to the countrys needs. Pakistan will have to at least double the national savings rate.

Low Export Growth:

Pakistans exports of merchandise goods are stuck at US $20 billion for past several years. This is equivalent to less than five days of exports of China. . Pakistan has a free trade agreement with China but does not yet figure in the global supply chain of Chinese imports.

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Budget Deficit:

The budget deficit for the first six months of FY 07-08 was 3.6% of the GDP and the likely figure for the 12 month period is expected in the range of 6% of the GDP. Most of this was on account of increase in development expenditure in the run up to elections, energy related subsidies and the inability of the government to increase and diversify the tax base.

Current Account Deficit:

The external account deficit has widened, and is expected to cross US$10.5 billion in FY07-08, to over 6.6% of GDP. The IFIs will I am sure offer their credits to cover the deficit. But it would be very imprudent to fill up the gap by borrowing from the IFIs. It will not only increase the indebtedness of the country, worsen the Debt/GDP ratio, with adverse implications on the politico-social structure of the country.

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Debt Management:

Pakistans government captures only 15 percent of national income leaving 85 percent in the hands of the private sector. This meager amount is to be spent on defence, debt servicing, internal security, development on education, health, general administration, etc. In 2007-08, Pakistans fiscal deficit was more than 7 percent. Debt / GDP ratio was reduced gradually between 1999/2000 and 2007/08 and brought down from 100 percent to 50 percent, --average for emerging economies.

Macro economic balance:

The rate of growth of the economy during the last three four years improved a bit, but was modest when compared with the rate of growth of our neighbors China and India. The two situations warrant very different approaches. If inflation is of the demand pull type then tightening the monetary policy will, through dampening demand would bring prices down. If, however, inflation is of the cost push type, then a tight monetary policy will make matters worse. And that is what has been happening in Pakistan over the last few years. Monetary policy has been used excessively to contain inflation, irrespective of whether it is of the demand pull or cost push type.
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Agriculture:

Pakistan is an agricultural country. The government needs to develop its vision for agriculture. In Pakistan the agriculture condition is almost very bad. The farmers are using old methods. The government should improve them. These small farmers should be encouraged to produce food items. This will make the country self sufficient in food.

Industry:

The government also needs to decide about the kind of industrial structure it should promote. Even during the 1960s when we used industrial policy very effectively, the tendency to produce a wide range of commodities and the grant of across the board fiscal incentives created imbalances. Formulating an industrial policy for the future necessitates that we evaluate our strengths and weaknesses objectively and dispassionately. The industrialization of the underdeveloped areas should initially be based on the static comparative advantage of these areas.

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Poverty and Income Distribution:

Over the last about two decades policies have been generating poverty and the poverty alleviation programs instead of making a dent on poverty, have resulted in elitist capture. Pakistan has been converted into a country of ten millionaires and ten million baggers, with the state having to take care of the ten million baggers. The government should deal with them in good and helping ways.

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Conclusions:
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Pakistani economy has made a substantial progress during the last sixty years but it has lagged behind other Asian countries in realizing its full potential. The current economic difficulties starting from 2007 have arisen due to a variety of internal factors and policy and management lapses. The stabilization program introduced in November 2008 with the assistance of the IMF is on track. The main challenge facing the country is how to resume the high growth trajectory that Pakistan had achieved between 2002-2007. The constraints are formidable but the opportunities do exist both domestically as well as externally whereby this goal can be attained . Pakistan has to shift its orientation from the West to the East in its foreign economic relations to align and benefit from the changes in the global economic balance of Power.

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