A critical evaluation of Pakistan Economic Performance

Musharraf Regime [1999 2007]

The Third Military Government

Musharrafs philosophy : Enlighten Moderation Enlighten moderation is the term coined by Pervaiz Musharraf which applies to practicing Islam moderately as opposed to practicing fundamentalist version of Islam. After 9/11 American government offered Pakistan to join them in the war of terror against extremist Muslims and Musharraf gladly accepted this offer. This gave the birth to the concept of Enlighten Moderation. Some also believe Enlighten Moderation is a misnomer for a new US Religious Order

7 Point Agenda and its Irony

1. Rebuild National Confidence and Morale: Pakistan is rich and is blessed with fertile land, abundant water and mineral resources. Musharraf promised to ensure its mobilization Pakistan faced shortages of basic food commodities many times. Furthermore, no research and development programs took place to mobilize these resources.

7 Point Agenda and its Irony

2. Strengthen Federation, remove Inter-Provincial disharmony and restore National cohesion Joining hands with America in the war of terror in our own country has killed more than 5000 civilians (stated figure) by means of 202 drone attacks creating disharmony like never before. From 800-1200 Al- Qaeda in 2004, the numbers have increased to more than 50,000. 197 suicide attacks in three years 2007-2009

7 Point Agenda and its Irony

3. Devolution of power to the grass root level
Grass root level corruption. Powers given to uneducated people who were not familiar with their usage. Senior officials were reporting to uneducated Nazim that created lack of morale. Funds were unequally allocated to a number of Nazim. Only 3% of funds for mega projects were allocated to local governments.

7 Point Agenda and its Irony

4. Revive Economy and restore Investor confidence Yes some sharp measures were taken and there's been economic growth at macro-economic level and investment is flowing in due to many corrective steps initiated by Musharraf. (This will be discussed in detail later in the presentation)

7 Point Agenda and its Irony

5. Ensure law and order and dispense speedy justice Failed miserably There was no control over law & order situation in his era. Lal Masjid incident, May 12 incident, more than 125 suicide bombings in 2 years, forceful removal of Chief justice of Pakistan and declaration of emergency are few of the examples

7 Point Agenda and its Irony

6. Depoliticize State institutions A forgotten agenda! No work done to make it happen

7 Point Agenda and its Irony

7. Ensure swift and across the board accountability When Musharraf came into the power, the tax to GDP ratio was 9%. Musharraf promised that in next 3 years the ratio will increase to 15%. After his tenure of 9 years the tax to GDP ratio was 7%

A Decade of Deception and Manipulation

Banking Sector
Shaukat Aziz was a consumer finance man and showed his true colors when he began to push for: The deregulation of the banking sector, including sharply cutting loan interest rates, allowed banks to engage more liberally in giving consumer finance loans As a result of these policies, the banking sector boomed and many foreign banks from the Middle East and other parts of the world came flocking to Pakistan. Banking profits soared, and banks were soon awash in liquidity

Banking Sector
Like all bubbles, the low-interest-rate bubble, too, had to burst one day. Within a few years, loan interest rates again began to rise steeply, soaring from a low of about five per cent per annum in 2002-03 to over 15 per cent in 2008 for business loans and 22 per cent for consumer finance loans

Software Industry
Pakistan completely missed out the first phase of the global software boom of which India took full advantage (earning as much as $ 10 billion in exports annually over the last decade) Pakistans exports from software and related services were negligible (around US $ 700 million expected in FY 2007).

Easy access to low-cost consumer finance led to a sharp rise in the sale of consumer goods such as cars, motor cycles, cell phones and home appliances. The sale of cell phones, in particular, registered a spectacular rise, with the total number of cell phones in the country soaring from less than 1 million a few years ago to 80 million today.

Telecommunication Sector
On the one hand, this rise in the number of cell phones vastly increased communications connectivity in Pakistan, allowing huge numbers of people across the country to talk to each other and conduct business transactions by phone. On the other hand, however, the absence of cell phone manufacturing plants in the country meant that all the phones had to be imported, adding to the country s import bill and further widening the already growing trade gap. The government often cited the increase number of cell phones as an example of success of its economic policies The bulk of the billions of rupees in revenue earned by the foreignowned cell phone companies were being remitted abroad because the government had imposed no limit on such transfers. If one were to factor these transfers into the GDP equation, the economy s growth rate, in real terms, would not have been as high as the government portrayed it to be.

Telecommunication Sector
On the one hand, this rise in the number of cell phones vastly increased communications connectivity in Pakistan, allowing huge numbers of people across the country to talk to each other and conduct business transactions by phone. On the other hand, however, the absence of cell phone manufacturing plants in the country meant that all the phones had to be imported, adding to the countrys import bill and further widening the already growing trade gap. The government often cited the increase number of cell phones as an example of success of its economic policies The bulk of the billions of rupees in revenue earned by the foreign-owned cell phone companies were being remitted abroad because the government had imposed no limit on such transfers. If one were to factor these transfers into the GDP equation, the economys growth rate, in real terms, would not have been as high as the government portrayed it to be.

Water and Power Crisis

Only one Dam named Gomal Zam Dam was built in this regime where its storage capacity was negligible for the country. Not a single Megawatt was generated by the government operated power houses and rental power projects were contacted to resolve this issue.

Expansionary Monetary Policy

Increasing money supply and decreasing interest rates created a double digit inflation. Middle income and lower income households suffered a lot from this inflation. It was as late as 11th April 2005 that the State Bank was awakened to the need for adjustment in the interest rate to tighten the liquidity in the economy. Reluctance on the part of the State Bank to raise the interest rates close to the rate of inflation has been a major failure of the Bank.

Growth
Too much reliance on services sector, real estate, and the stock market. Service sector was 54% of Pakistan's economy but employs only 36% of the population. y Real estate development was one of the important sectors of the economy as was the modern service sector. Neither, at least in the context of Pakistan, generated employment and income for the poorer segments

Growth
Growth came from the sectors which did not provide much employment to lower income groups Agriculture sector grew by 1.5% and banking sector grew by 30% but that was a jobless growth. The real productive sectors of the economy, both export oriented manufacturing industry and agriculture have been completely ignored. The land under cultivation in 1999 was 23 million hectares, which is still the same.

Debt Burden
General Musharraf's regime has broken all previous records in borrowing and has pushed the country into a debt trap. Such debt apart from additional borrowing is also composed of rescheduled debt as they are unable to generate sufficient wealth from the domestic economy.

Where Did Growth Come From?

Contradicted the governments' claim that the high growth
rate is a result of its better economic performance Whereas it is the result of foreign aid, loans, remittances, privatization, multilateral financial assistance programs and above all the event of 9/11, which changed the face of Pakistani economy.

Economic Deceptions
In 2007, the Planning Commissions chief economist was transferred when he refused to approve governments claim that poverty level had been reduced by 10 percent from 33 to 23 percent. If the economy grew by US $100 billion in the last eight years on a base of US $65 billion, as claimed by Dr Salman Shah, then it means that it grew at a compound annual growth rate (CAGR) of 12.35%. This would mean that Pakistan's economy grew faster than even China's

Economic Deception
Another blunder was committed by first allowing export of wheat at around US $200 per ton and then importing the commodity at over US $400 per ton that resulted in a loss of around Rs 40 billion. Agriculture sector was nominal even after 7 years, as 21 million tonnes of wheat and 11 million bales of cotton were produced in 1999 as compared with 23 million tonnes of wheat and 13 million bales of cotton.

Economic Deception
According to the Pakistan Economic Survey for 2006-07, the national expenditure on education as a percentage of GNP declined from 2.2% in 1998-99 to 1.9% in 2005-06 as against the internationally desired level of 4.0%. Average annual GDP growth rate under Musharrafs eightyear rule (5.4%) was only marginally higher than that achieved under the preceding civilian governments of Benazir Bhutto and Nawaz Sharif during the 1990s (4.6%).

Economic Deception
Loan amount of Rs 54bn was written off, which was the liability of friends of Musharraf. In order to show increase in GDP, motor vehicles were declared as Machinery.

Nominal GDP vs. Real GDP

30% 25% 20% 15% Nominal GDP 10% 5% 0% Real GDP

Privatization
Country earned 417 billion Rupees ($6.41 billion) through privatization. , Claiming this was a record amount, incontrast to the 57 billion Rupees ($.870 million) earned by civilian governments between 1991-1999. According to Anti-privatization Alliance Pakistan, a massive 1550 billion Rupees ($23.84 billion) worth of corruption occurred during this eight-year privatization push.

Privatization
Looking at the privatization of financial institutions alone, a record looting of 700 billion Rupees ($10.76 billion) took place. 51% of Habib Bank Limited (HBL) shares were sold to the Agha Khan Fund for Economic Development in December 2004 for only 22 billion Rupees, its total assets were worth more than 570 billion Rupees. Another large bank, United Bank Limited (UBL), was sold for only 13 billion Rupees.

Privatization
Country earned 417 billion Rupees ($6.41 billion) through privatization. , Claiming this was a record amount, incontrast to the 57 billion Rupees ($.870 million) earned by civilian governments between 1991-1999. According to Anti-privatization Alliance Pakistan, a massive 1550 billion Rupees ($23.84 billion) worth of corruption occurred during this eight-year privatization push.

Privatization
Looking at the privatization of financial institutions alone, a record looting of 700 billion Rupees ($10.76 billion) took place. 51% of Habib Bank Limited (HBL) shares were sold to the Agha Khan Fund for Economic Development in December 2004 for only 22 billion Rupees, its total assets were worth more than 570 billion Rupees. Another large bank, United Bank Limited (UBL), was sold for only 13 billion Rupees.

Conclusion
Musharraf and his government did every possible thing to stay in power. Not managing fuel prices, exchange rate and alike until elections had an adverse affect on our economy. His economyrelated decisions are mostly manipulated and false whereas his political decisions were also causing a great damage to Pakistans economy. Musharraf did not try to strengthen the industrial sector and his keen desire to privatize almost everything left Pakistan with no revenue generating asset