ISLAMABAD (January 14 2003) : Adviser to the Prime Minister on Finance, Planning and Economic Affairs, Shaukat Aziz, has declared that 6 percent GDP growth rate would be achieved “in three years down the road”.
Addressing the inaugural session of the 18th Annual General Meeting and Conference of Pakistan Society of Development Economics (PSDE) here on Monday he reiterated government's resolve to improve the life of common man, creating employment opportunities through pro-poor growth policies and keeping inflation at the current level.
He outlined following points as the government's economic improvement vision during the next five years:
1) improving the life of common man,
2) creating employment opportunities through promoting higher investment and growth,
3) taking GDP growth to 6 percent from the current year target of 4.5 percent,
4) raising per capita income by 42 percent in 5 years,
5) reducing poverty by 25 percent, from the current level of about 30 percent to 22.5 percent,
6) investment rise to 18 percent from the current level of 15-16 percent of GDP and saving rate to rise to 16.5 percent from the current level of 15 percent,
7) inflation to remain below 5 percent,
8) fiscal deficit to decline to less than 3 percent of the GDP from the current year's target of 4.4 percent,
9) public debt to decline to 76 percent of the GDP from the current level of about 97 percent,
10) current account deficit to range between 1.0 percent and 1.5 percent of the GDP,
11) development spending to rise above 4 percent of the GDP from the current level of 3.3 percent, and
12) social sector development to continue to be the cornerstone of the government's economic policy.
He said that the prerequisite to achieve all these targets include:
1) political stability in the country,
2) regional stability,
3) better law and order situation in the country,
4) continuation of consistent and transparent economic policies,
5) completion of the structural reform programme and, most importantly,
6) “WE MUST CONTINUE TO REMAIN FISCALLY RESPONSIBLE.”
He said that the last Annual General Meeting of the Society had taken place in the backdrop of the events of September 11, 2001, which changed the complexion of the global economy, while this year's meeting is taking place in an environment of extreme uncertainty, “as the threat of war is looming large” on Iraq.
He said: “There is a general perception that an armed conflict in Iraq could thoroughly shake the already fragile world economy, causing disruption in oil supplies to the rest of the world, particularly Asia which has little oil reserves of its own and remains heavily dependent on imports. Such disruption is bound to cause oil price hike, rising economic uncertainty and decrease in business and consumer confidence.”
The Adviser said that recent estimates suggest that a sustained price hike of five dollars per barrel of crude would slow down growth in world economy by 0.3 percent, with Eurozone and United States witnessing drop in GDP growth by 0.4 percent.
“To the extent that Pakistan is integrated with the World economy, the slow-down is likely to cause temporary difficulties for us as well. The avoidance of war in Iraq, therefore, is in the best interests of the global economy in general and developing countries in particular,” he cautioned.
He said that despite a series of domestic and external shocks, such as unprecedented drought, the events of September 11, and the military build-up by India, Pakistan's economy made commendable progress during the last three years.
“The economy is now more stable; economic policies are transparent and predictable; confidence of the private sector is restored; expatriate Pakistanis are bringing their capital; stock market is buoyant; external balance of payments is in a comfortable position; foreign exchange reserves have crossed $ 9.4 billion and are sufficient to finance ten-and-a-half months of imports; exchange rate is stable, inflation is low and interest rates are declining; domestic and external debts have declined; fiscal deficit has been lowered and current account balance is in surplus; tax collection is growing; exports have picked up; governance has improved; and lastly, Pakistan's credit rating in international markets has improved”, he added.
He said these improvements must be viewed in the backdrop of major challenges which the country confronted some three years ago.
“These challenges included: 1) stabilising the country's debt situation with a view to restoring macro-economic stability: 2) reviving investment and growth: 3) preventing people from falling below the poverty line; and 4) improving governance.
“Given the nature and depth of challenges,” he said, “we had two options. First, to address all the four challenges simultaneously, or second, to prioritise them and address the core issues first.”
Shaukat Aziz said after extensive deliberations it was decided to adopt the second option.
“We decided to address the issue of severe macroeconomic instability and place the economy on a path of high sustained growth, financial stability, and improved external balances by undertaking a comprehensive set of economic stabilisation and structural reform measures,” he said.
He said that due to all these policies, “we have achieved the macro-economic stability.
The fiscal deficit which averaged 7 percent of GDP in 1990s, has now been reduced to 5.1 percent during last year and is projected to decline further to 4.4 percent in the current fiscal year.
Current account deficit, which averaged almost 5 percent of GDP in 1990s, turned surplus to the extent of 2.1 percent last year, and is likely to be even higher this year.
Domestic debt which was increasing at an average rate of 16 percent per annum during 1990s due to these happenings declined in fact by 2.5 percent last year and is projected to decline further this year.
External debt and foreign exchange liabilities, which stood at around $ 38 billion or 335 percent of foreign exchange earnings, declined to about $ 36 billion or 233 percent of foreign exchange earnings last year and projected to decline to 200 percent this year.”
He said that debt servicing as percentage of the total revenue was 64 percent in 1998-99 and it declined to 47 percent last year and is projected to decline further to 44 percent this year.
“We succeeded in keeping inflation below 4 percent. Interest rates are on decline.
The weighted average lending rate was 15.4 percent in 1998-99 but now has been reduced to 10.6 percent.
This is going to decline further. Our foreign exchange reserves are above $ 9.4 billion and these are likely to cross $ 10 billion even before the end of the current fiscal year,” he added.