MUSHARRAF: A SAVIOUR OR A DISASTER?
Part I: The Economy
by B.Raman
Gen.Pervez Musharraf, the self-styled Chief Executive of
Pakistan, who completed 18 months of his rule on April 12,2001, told
Pressmen at Karachi on March 25: "I am not going to retire as the
Army Chief coming October. I will continue with the strategic
programme for the reconstruction and restructuring of Pakistan to realise
the real objectives of the creators of the country. I have
identified four core areas--economic revival, good and efficient
governance, poverty alleviation and political restructuring-- where
strategic solutions are required. "
While he has repeatedly affirmed that he would, as
ordered by the Pakistani Supreme court, restore a democratically-elected
Government by October 12,2002, his lieutenants have been hinting that such
a government would have to work under the over-all supervision of the
military with the General elevating himself as the President and with an
amended Constitution granting him powers to dismiss the Prime Minister
under certain circumstances.
When he seized power on October 12,1999, he was hailed
by large sections of the public as a saviour. Though the public in
general and the elite in particular have since been disenchanted with him
because of his non-performance in all the core areas, he continues to look
upon himself as the only saviour available to Pakistan.
Has he been a saviour or a disaster to Pakistan? What
has been his performance like in various fields? What are the main
features--positive or negative-- of his administration? What is the public
perception of him--at home as well as abroad? Is Pakistan condemned by
Allah to be ruled by Musharraf?
To facilitate an answer to these questions, important
aspects of his regime will be examined in a series of papers. This,
the first one, is devoted to the economy.
After seizing power on October 12,1999, Musharraf
justified his action by referring to the virtual collapse of the economy
and of the State institutions under the political leaders, who had ruled
the country since 1988. He initiated a programme of what he called
strategic economic reforms--revamping of the tax collection machinery,
documentation of the economy to reduce tax evasion, recovery of unpaid
loans, diversification of the economy to reduce dependence on the export
of agricultural commodities and agriculture-based manufactured goods,
greater attention to education and poverty alleviation, incentives for
foreign investors, better governance, elimination of corruption etc.
What has been his performance card after 18 months of military
dictatorship?
After a brief spell of improvement in the second half of
the year 2000 mainly due to a good monsoon and bumper cotton and wheat
crops, the economy has started deteriorating again. Even during this
period of improvement, the economic indicators in those sectors not
related to agriculture showed that the economy was in a poorer shape than
it was during the last months of the rule of Mr. Nawaz Sharif, the
overthrown Prime Minister.
While the Musharraf regime has been trying to fudge
these figures, independent economic analysts have been highlighting what,
in their assessment, is the real state of the economy. Writing in
the "News" (February 28), Mr. Ahsan Iqbal, former Deputy
Chairman of the Planning Commission, observed as follows: " The
non-representative Governments have always talked of reforms in Pakistan,
but ultimately turned out to be champions of status quo because of their
vulnerability to public agitation and disturbances. The present
Government has back-tracked on almost all major initiatives it
launched."
Comparing the state of the economy during the second
half of 2000 with that in the second half of 1999, he stated as follows:
* The GDP growth rate for 2000-01, initially fixed at 5.5
per cent, has already been reduced to 5 per cent and is expected to be
further reduced to 4.5 per cent or even below.
* The rate of inflation increased from 3.4 to 4.8 per
cent.
* A 73 per cent drop in cumulative total foreign
investment from US $ 276.6 million to US $ 74.7 million.
* A decline in the monthly rate of increase of net
state revenue from 23 to 13 per cent.
* Collection of only 41.9 per cent of the targeted tax
revenue as against 46.3 per cent in the second half of 1999.
* A steep decline in the monthly rate of increase of
sales tax collection from 93 to 42 per cent, falsifying claims of
success of the documentation drive.
* A nine per cent decline in corporate tax payers from
24,150 to 22,000.
* An increase in the non-performing loans of the banks
and other financial institutions from Rs.211.83 billion to Rs.282
billion.
* An increase in defaulted loans from Rs. 145.7
billion to Rs.149.13 billion.
* A decline in the total debts recovered from Rs.16.2
billion to Rs.15 billion.
* An increase in the trade deficit from US $ 767
million to US $ 938 million.
* A Rs.10 billion cut in the funds allocated for
poverty reduction and social development.
* A doubling of the prices of diesel and other POL
products.
While the military regime tried to discredit the
analysis of Mr. Iqbal by pointing out that he was appointed as Deputy
Chairman of the Planning Commission by Mr.Sharif, the State Bank of
Pakistan's (SBP) report on the economy for the second quarter
(October-December 2000) of the fiscal year 2000-01 published by the
"Dawn" (February 27) corroborated his analysis.
The SBP report revised down the forecast for the GDP
growth from 4.5 per cent to "slightly below 4 per cent" for the
current fiscal year without giving an exact figure. It cited the following
reasons for the lower projection:
* A sharp decline in agricultural production. According
to initial estimates, the output of sugar cane and rice declined to 45
million tons and 1.9 million tons showing a fall of 19.1 per cent and
11.4 per cent respectively against the targets set for this fiscal year.
* Production of major crops fell in relation to the
targets chiefly because of the targets being ambitious and continued
shortage of irrigation water in the country.
* Wheat crop of the Rabi season currently under
cultivation may also fall to 18.8 million tons against the initial
target of 20.5 million tons.
* "As cotton, sugar cane, rice, wheat and gram
together account for around 94 per cent of the production in major
crops..., the shortfalls in their output will have a large adverse
impact on the agriculture sector. Consequently, aggregate economic
growth rate will also slide downwards from the postulated level. "
* Large scale manufacturing grew only by 3.1 per cent
in the first half of this fiscal year compared to 7.8 per cent in the
first half of fiscal 1999-00."Given its overall weight in the GDP
and the slowdown of growth, the manufacturing sector will also
contribute to the downward adjustment in aggregate growth in this fiscal
year."
The "Dawn" reported that the military regime
also told an International Monetary Fund (IMF) Review mission, headed by
Mr. Sena Eken, which visited Pakistan in the second fortnight of February,
that the GDP growth target set for 2000-2001 was unlikely to be achieved
due to a drought-like situation developing in Pakistan and that the $10
billion exports target set for the current fiscal was also unlikely to be
met specially due to a 9 per cent decline in exports in December.
The "Dawn" reported on April 13 that there has
been a further deterioration in the economy as a result of which the
Government has secretly further lowered the GDP growth projection to 3.5
per cent and that even this further lowered target may not be
reached. According to its experts, the GDP growth rate was unlikely
to exceed 3.2 per cent this fiscal year. It further said:
* "Industrial production, barring the textile
industry, is more or less sluggish. The sugar, cement and construction
industries are operating at about 50 per cent of their capacity.
There is critical shortage of sugarcane and the demand for cement and
property has declined sharply. No major dam is being built or no
construction activity that could push cement sales and revive the
construction business in general, is being undertaken by the government.
* "The Public Sector Development Programme (PSDP)
has suffered a cut of 10 per cent to keep the fiscal deficit on track
due to financial constraints, caused by shortfall in tax revenue.
* "Official statistics show that large-scale
manufacturing has grown by 3.1 per cent in the first half of the current
fiscal year compared to 7.8 per cent during the corresponding period of
last year.
* "A slower economic growth may impact adversely
on revenue collection. Unofficial revenue estimate for the year is Rs380
billion against the target of Rs. 417 billion. In the first half
of the fiscal, Rs182 billion has been collected and Rs235 billion needs
to be collected in the second half. Economic indicators do not lend
support to the view that the target will be met.
* "A corporate research report indicates that the
government may hit a fiscal deficit that may be closer to 6.2 per cent
than to the target of 5.3 per cent. "Our numbers indicate
that the IMF would have to accommodate a further 0.9 percentage point
slippage in deficit GDP ratio to keep the Stand-By Arrangement",
says the report.
* "The stipulations in the research report are
based on revised estimates for cash crops as follows as opposed to the
original targets in brackets: Wheat 17.5 million tons (20 million tons),
cotton 9.7 million bales (10.7 million bales), rice 3.9 million tons
(5.1 million tons) and sugarcane 35 million tons (51.6 million
tons). At the start of the year, the agricultural growth was
targeted at 3.6 per cent. This was reduced to 1.6 per cent at the
end of the first quarter.
* "One estimate is that the farmer suffered a 40
per cent water shortage due to inadequate winter rainfall.
Official sources indicate that the acreage under wheat has fallen by 30
per cent in Sindh and 16 per cent in Balochistan.
* "In the Letter of Intent of March 30, 2001, the
IMF has agreed to two or three important revisions to the original
targets. These are: Cut in real GDP growth estimate from 4.5 per
cent to 3.8 per cent and inflation rate from 6 per cent to 5 per
cent. Unofficial estimates put the running inflation rate at about
8 per cent, fuelled by depreciation of the rupee and rising electricity
and gas charges. Official foreign exchange reserves have been
targeted at $1.6 billion against 1.7 billion by end June 2001."
Nowhere has the decline been more dramatic than in
respect of foreign direct investment (FDI) and portfolio investment.
Quoting SBP figures, which have not been released to the public by the
military regime since it seized power, the "Dawn" of April 28
reported as follows:
* "The inflow of foreign investment in Pakistan has
declined by a drastic 74 per cent during the first nine months
(July-March) of the current fiscal year.
* " Total foreign investment in the first nine
months has touched a 10-year low of $104 million compared with $393
million same period last year, State Bank of Pakistan (SBP) figures
revealed.
* "The foreign direct investment (FDI) that
amounted to $232 million in the first nine months, 36 per cent lower
than $360 million same period last year, was further reduced due to $128
million outflow of portfolio investment. The stock market had
attracted $32 million during the first nine months of the last fiscal
year but this year $128 million worth of outflow took place.
* "There was no new public offering in the stock
market and foreign investors offloaded their investments in the existing
scrip due to unstable political and economic situation in the country.
This is in contrast to the official claims that investor confidence has
improved and investment climate revived during the last one year.
* "The Board of Investment (BOI) has decided not
to disclose overall investment figures recorded by the SBP in view of
the dismal performance of the investment sector.
* "Chairman BOI Wasim Haqqie, however, claimed
that the government had been able to secure $1.7 billion worth of
investment commitments during the current fiscal year. He, however, did
not reveal how long will it take to materialise these commitments and
how much of them have been converted into agreements.
* "The chemical, pharmaceutical and fertilizer
sector that attracted $108 million during the first nine months of last
year could reach a meagre $21 million same period current year, showing
a decrease of 81 per cent. The FDI in the machinery sector also declined
from $2.8 million to $0.2 million, a reduction of over 92 per cent.
* "The power sector that has been the mainstay of
foreign direct investment in Pakistan since mid-1990s, has been able to
attract only $22 million in the first nine months of the current year
against $66 million same period last year, registering a decline of 67
per cent. Investment in construction sector also decreased from $14
million to $8.5 million.
* "The FDI in the transport and communications
sector, however, registered a three-time increase of $61 million against
$21 million same period last year. Food, beverages and tobacco sector
remained almost steady at $45 million. The FDI in the mining and oil
exploration sector also increased from $49 million to $60 million.
* "Investment in financial business that was $11
million last year, witnessed an investment outflow of $40 million while
investment in the textile sector increased from $2 million to $4
million.
* "On a country-wise basis, Pakistan's two
largest investment contributors the UK and the USA reduced their share
by over 50 per cent. The FDI from the United States amounted to $55.5
million during the first nine months of the current fiscal against $121
million same period last year, showing a decline of 54 per cent.
* "FDI from the UK also reduced from $151 million
of last year to $77.5 million this year, a fall of 49 per cent.
Investment from Germany, Korea and France also declined from $12 million
to $6.5 million, $7.2 million to $3.7 million and from $1.5 million to
$0.7 million, respectively.
* "FDI from Saudi Arabia, however, increased from
$25 million last year to $40 million this year. FDI from the
Netherlands, Hong Kong, Italy and Japan amounted to $2.9 million, $2.7
million, $1.3 million and $8 million, respectively.
* "This apparently suggests sluggish investment
activity that will have direct negative impact on government's revenue
performance and economic growth because most of the tax revenue emanate
from investment-related import.
* "The inflow of foreign investment in Pakistan
has been averaging around $600 million during the previous decade except
1995 and 1996 when foreign investment had even touched $1.53 billion and
$1.3 billion, respectively."
Earlier, talking to Pressmen at Karachi on April 15,
Mr.Shaukat Aziz, the Finance Minister, admitted that the economy could
suffer a loss of $2 billion due to drought and water shortage. He
explained that a loss of one billion dollars had been estimated on account
of the increase in the import bill for furnace oil for thermal power
generation, as lowering of river water levels had reduced the hydel power
generation capacity.
Import bill may also be a little higher if the wheat
crop in the final estimate was found less than the domestic requirement.
Adding to this loss would be the loss of one billion dollars, to be
suffered on account of production losses of the crops, which would affect
the country's export potential. The balance of payments would come under
the impact of a double-edge sword - higher import bills and lesser
exports, he added.
Whatever structural reforms the military regime might
undertake, Pakistan would never be able to get out of its economic mess
unless and until the military regime cuts down its defence expenditure,
normalises its relations with India and ends its costly involvement in
Afghanistan. The State budget does not reveal all the items of the defence
expenditure, many of which are concealed in the budgets of other
Ministries such as the General Administration, Transport and
Communications and Science and Technology.
Writing in the "Dawn" of December 31, 2000,
Mr.Ardashir Cowasjee, the highly-respected columnist, estimated that
taking into account all hidden figures, the total annual defence
expenditure of Pakistan came to RS.230 billion (US $ 4.18 billion) as
against total revenues of Rs.450 billion (US $ 8.18 billion)---that is,
more than 50 per cent of the State revenues is spent on the Armed Forces.
Despite the worsening economic difficulties, the military regime is not
prepared to consider a significant cut in defence expenditure. Instead, it
has imposed the cut on poverty alleviation and social development.
Its continued sponsorship and support of terrorism
against India has been coming in the way of the normalisation of its
relations with India and this too has been coming in the way of its
economic recovery in the following manner:
* Reluctance of countries such as Turkmenistan and Iran
to invest in costly oil and gas pipeline projects in Pakistan unless
they are able to take the oil and gas further forward to the much larger
Indian market.
* Similar reluctance of investors from developed
countries to invest in the manufacturing sector in Pakistan unless they
would be in a position to sell their products in India.
* Increase in the cost of production of the existing
manufacturing industries due to their having to import their raw
materials, machinery and spare parts from far away countries instead of
across the border from India.
* The necessity of maintaining a high level of defence
expenditure.
* Nervousness caused amongst foreign investors due to
the nuclear rhetoric indulged in by the military and the Mullahs and
their talk of the danger of Kashmir turning into a nuclear flashpoint.
In Afghanistan, since the Taliban administration has no
other source of revenue except narcotics and the smuggling of electronic
goods for re-sale in the Pakistan market, a large portion of its military
budget, estimated at US $ 100 million per annum, has to be subsidised by
the Pakistan Government.
Despite these stark ground realities, the military
regime is not prepared to consider any change in its policies.
The disenchantment of the people with the earlier
political regimes and the present military dictatorship was vividly
described by Mrs.Meiko Nishimizu, the Vice-President of the World Bank in
charge of South Asia, while addressing the concluding session of the
meeting of the Pakistan Development Forum (formerly known as the Aid
Pakistan Consortium) at Islamabad on March 15.
She said that during her interactions with the people of
Pakistan during her stay in the country, this was what she repeatedly
heard from them:
* "The nation faces a deep crisis."
* "Had our leaders stolen less, the country will
not be in such a crisis."
* "Public institutions have become
politicised."
* "There is an unholy alliance among the
powerful, including politicians, criminals and the police."
* "Public servants are not accountable. They are
interested only in filling their own pockets."
* "People are not heard and are isolated."
* "It is humiliating that you see us living like
animals. We are forgotten."
Mrs.Meiko then warned the military leadership as
follows:
* "These are powerful and frightening words. To me,
their message is this: Pakistan suffers from a weakened capacity of the
State to exercise its power, judiciously and effectively, towards
economic growth with equity and social harmony.
* "Listening to what is said and not said, we
heard cynicism and sensed skepticism about any Government's ability to
change truly for good governance. We felt a palpable absence of trust
between the people and those in any positions of power and authority.
This is more powerful and frightening than any spoken words.
* "In Pakistan, I have come to sense that many
are frustrated, entrapped in crevasses of bad governance and have lost
that fire in the belly having lived the history of the nation evolving
from good to bad to worse.
* " I sense that too many have let the cynics
rule, resigned to the status quo and remain silent in frustration and
despair. Some have not even run to the extreme of means---violence, arms
and crime---to express their views. If I am right, Pakistan may become
imprisoned in a vicious circle of negative thinking."
The writer is Additional Secretary (retd), Cabinet
Secretariat, Govt. of India, and, presently, Director, Institute For
Topical Studies, Chennai. E-mail: corde@vsnl.com
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