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The Imperatives Of Economic Revival
Dr.Akmal Hussain
Newspaper: Daily Times
Dated: Thursday, 2nd May 2002

Pakistan's economy continues to be in the throes of recession which can now be termed as the most protracted economic decline in the country's history. The growth rate of GDP has declined sharply falling from an average of 6.3% in the 1980s to an average of 4.2% in the 1990s. During the last two years the average growth rate has fallen even further to about 3.5%. At the same time over the last decade poverty has increased at a pace unprecedented in Pakistan's history. In terms of the calorific norm the percentage of population below the poverty line has increased from about 17% in 1987 to about 33% in 1999. My research during the last two years has shown that the declining trend in GDP growth has been accompanied by three adverse structural features of economic growth in the 1990s which may have not only accentuated poverty but also increased Pakistan's financial fragility with respect to the balance of payments deficit: (i) Increased instability of GDP growth, fuelled primarily by a much greater amplitude of fluctuations in the out put of the crop sector. In a situation of slow export growth increased instability of growth imparts a fragility to the balance of payments. (ii) Declining employment elasticities of output in both industry and agriculture, thereby reducing the employment generation capability of the economy for given GDP growth rates. (iii) Declining labour productivity in both agriculture and industry leading to the observed decline in real wages of casual workers, which is the predominant form of hired labour in Pakistan.

While an adverse change in the level and structure of economic growth were crucial factors in increasing poverty, equally important was the deterioration in the institutions of governance. Due to poor economic management by successive governments in the 1990s, both the level of development expenditure and the efficiency of its use declined, resulting in acute shortage of basic services to the poor, such as health and education.

In designing and implementing a strategy of economic revival it is important to understand that interventions merely in the financial sphere (such as budgetary allocations and interest rate manipulation) while they may have been useful in the 1960s will be inadequate to-day. Given the depth of the economic crisis, it is clear that rapid and decisive initiatives will have to be undertaken to change the structure of the real economy as well as institutions of governance itself.

Let us now indicate the revival strategy that could be undertaken, to lay the basis for a sustainable growth rate of GDP in the medium term future. Such a strategy should be designed to optimize four parameters: (a) Achieve higher GDP growth with a relatively lower investment. (b) Generate higher employment for given growth rates of GDP. (c) Achieve greater poverty reduction and (d) Generate higher exports. In November 1999 I had proposed to the government a four pronged revival strategy to take account of the four parameters specified above. (Also published in the daily Dawn, November 25, 1999). The government has adopted most of these and it may be useful to review progress in each case:

1. The first initiative should be to launch a national campaign for poverty alleviation. The objective of this campaign should be to facilitate rapidly and cost effectively the establishment of autonomous organizations of the poor. Through these organizations the poor can identify income generating projects at the household level, acquire skill training from governmental sources, private sector, NGOs and donors; and access credit for micro enterprise projects. In this regard the government has established the Khushali Bank and also supported the Pakistan Poverty Alleviation Fund. These are commendable actions but unfortunately grossly inadequate. The credit for micro enterprises being dispersed by both institutions to genuinely autonomous organizations of the poor on an annual basis is less than half a million dollars which is a small fraction of the micro credit actually required. Moreover micro credit in itself is not enough. It has to be combined with the rapid development of organizations of the poor, skill training and marketing support. In addition it would be necessary to establish an institutional link between autonomous organizations of the poor and various tiers of the local government structure.

2. The second prong of the revival strategy should be a national campaign on a war footing to rehabilitate Pakistan's irrigation system. The availability of water to the farmers has declined sharply, due to inadequate desilting, canal seepage and breaches of canal banks. Consequently of the 93 million acre feet of water annually diverted into the irrigation system only 40% reaches the root zone of crops. A campaign to build medium and small dams, combined with desilting of canals, improving water courses and finally on farm water management would help to bring more water to the farmers and at the same time generate more employment. The government has undertaken a series of promising projects in this regard. These include creation of additional storage capacity through the following projects: Gomalzam and Meerani dams, and new irrigation systems like Ranie, Thar and Kachi canals as well as lining of water courses and improving on farm water management. A new medium term plan for the water sector has been prepared with a planned expenditure of Rs.86.1 billion. This is an important new initiative by the government. The challenge is to implement quickly. There is no time to lose.

3. The third prong of the revival strategy is to rapidly develop export led production capacity for milk, fisheries and high value added agricultural products such as fruits, vegetables and flowers. Let us illustrate this initiative by using the example of milk. At the moment Pakistan is producing approximately 177 billion rupees worth of milk annually for domestic consumption. This makes milk the largest agricultural product. By comparison, wheat, Pakistan's largest crop has an annual production value of approximately 111 billion rupees. Unlike wheat however, the output of milk can be accelerated sharply within a couple of years. Currently Pakistan's milch cattle have a yield per animal which is one-fifth of the European average. Demonstrable experience in the field has shown that the milk yields per animal in Pakistan can be doubled within two years through scientific feeding, breeding and marketing. If the institutional framework could be established for training the farmers in scientific feeding and breeding and if the logistics could be set up to collect milk from the farm door by means of refrigerated transport, milk output in Pakistan could be doubled. This would have a dramatic impact not only on the incomes of poor peasants, but also on exports and overall GDP growth. In view of the fact that Pakistan lies at the hub of milk deficit regions such as Central Asia, West Asia and South East Asia, if milk out put in Pakistan could be doubled our exports earnings could increase by US $ 4 billion annually. Keeping in mind that Pakistan's balance of trade deficit is about US $ 1.5 billion an additional four billion US $ of foreign exchange earnings from milk exports would resolve Pakistan's balance of payments problem. Such an initiative therefore can lead to accelerated exports, higher GDP growth and improved income distribution in Pakistan.
Marine Fisheries, also provide a significant potential for improving foreign exchange earnings although not as large as the potential for milk. Here again what is required is improved institutional support and better management rather than huge investments by the Government.
An important element in increasing high value added production and export in the agricultural sector would be to facilitate the production of fruits, vegetables and flowers for exports. This would require institutional support for improved quality of output, improved grading packaging, and refrigerated transport right up to the cargo terminals for air freight to the export market. There appears to be little progress on this issue.
4. The fourth prong of the strategy would be to establish industry specific training institutions combined with institutional support for credit and marketing to the small-scale industrial sector in Pakistan. Large-scale training of software experts for example could quickly result in significant software exports from Pakistan. India with its 200,000 computer specialists, exports about 5 billion US$ worth of software and has a target of 20 billion software exports in the next five years. There is no reason why Pakistan cannot build a pool of software experts for a large increase in its export earnings. This would of course require a pro-active government to establish joint ventures between large software companies in the U.S. and private sector firms in Pakistan.


In this article, medium term policy initiatives have been identified for both a more equitable and an export led acceleration in GDP growth. Achieving this strategic objective involves two challenges. The first is to win the support of the international community to provide the necessary breathing space on the fiscal front. Second, to build the institutions and implementation mechanisms through which the four initiatives can be brought to fruition.

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