KARACHI (January 09 2003) : Dr Ishrat Husain, Governor of the State Bank of Pakistan, said on Wednesday the country was likely to hit six percent economic growth by fiscal 2004-05 and that it had asked the new civilian government to stick to reforms initiated in 1999.
The SBP governor also told Reuters the country was building up reserves of essential food and fuel in case there was a war in Iraq.
“We are moving toward the trajectory growth path of six percent slowly and gradually,” Dr Husain said in an interview.
Pakistan aims to achieve 4.5 or 4.6 percent economic growth in fiscal 2002/03, and for the next fiscal year hopes to exceed five percent growth.
Dr Husain said the new civilian government should remain committed to the economic reforms initiated three years ago under military rule by President Pervez Musharraf.
“The government should keep an eye on fiscal discipline, fiscal deficit to avoid falling in the debt trap once again,” he said.
“All the unpopular decisions were taken by the military government. Now it is time to reap the dividends from those decisions,” he said.
Former military government won praise from global donor agencies, including the International Monetary Fund, for meeting stringent conditions, including broadening the tax net, withdrawing subsidies and increasing utility charges.
The decisions met tough resistance from traders, the business community and the general public.
Dr Husain said that three years ago Pakistan's economy was in crisis. “It was at the brink of default” on repayments of its foreign debt.
“All the macro-economic indicators were moving downwards.”
The military government brought the economy out of crisis and gave it stability, he said.
POPULAR EXPECTATIONS: The SBP governor said people expected the new leadership to give relief to the poor, but it should not be done at the expense of reforms.
“In Pakistan when we were experiencing a six percent GDP growth rate, poverty declined to 18 percent (of the population).
“But in the 1990s when the growth rate declined to three to four percent, poverty surged to 34 and 35 percent. One can see a clear correlation between the growth and poverty.”
Economic analysts say about one-third of Pakistan's 140 million people live in poverty. But the government calls the figures exaggerated.
Dr Husain said the civilian government should continue with the devolution process and continue investing in agriculture, small- and medium-sized enterprises and irrigation.
It should also promote information technology and invest in the oil and gas sector to spur growth and employment.
But most importantly, it should “keep an eye on fiscal discipline and fiscal deficit, which is very critical and speed up reforms and restructuring of” state-run utilities.
“If we don't do that we can get back in the debt trap,” he said.
He added that the central bank would ensure stability in exchange rates.
“We will continue to mop up when there is an excess dollar supply and to inject when there is shortage,” he said.
“The central bank only comes in for stability of the exchange rate … we don't like to have volatility, where the exporters cannot plan.”
He also said the country was building strategic oil and food reserves ahead of a possible war in Iraq.
“We have our contingency plan in place strategic oil reserves building up, food grains … we have sugar, wheat rice, oil supplies,” he said.
“We have to look at the alternate supply of oil if we are not able to get it from the Middle East,” he added.