DELUSION OF GROWTH

DELUSION OF GROWTH <!--[if gte mso 10]> DELUSION OF GROWTH By Dr. Ikramul Haq, Advocate, Lahore The past few weeks have witnessed much self-congratulation by the government on economic matters claiming not only that things are generally much better but also the economy's performance has been more vibrant than ever before, implying in the process that after achieving economic stability an era of higher growth has just started. This simply is not true. If anything the government should be worried about are the disturbing signs of economic stagnation and. Industrial slow down. Despite tall claims the fact remains that the economy is plummeting and not coming out of recession. People have money, banks have liquidity, lending rates are lower than ever and yet there is no boost in business activities. The investors are shy and afraid, mainly due to perpetuation of political instability and economic uncertainty. Life for the common man on the streets is becoming a misery leading to social restlessness. Although we claim to be an agricultural economy yet a vast majority of the people do not have enough to eat. It is tragic that we even import agricultural products and have miserably failed to develop any worthwhile agro-based industry in the last 50 years. What a decline from the times when this region (i.e. United Punjab before partition) had the undisputed position of being the granary of the entire Sub-continent. Look at the mess our successive governments, military and civilian alike, created on the debt front. The figure of foreign debt is a monstrous $34 billion and that of domestic debt is Rs.1,652 billion (figures from Economic Survey 2001-2002). Both external and internal debts are not decreasing at the required pace (although some respite was achieved after 9/11 mainly due to friendly gestures by the Western States. and the USA). In the given scenario it seems that the dream of self-sufficiency will remain illusive. The way we are managing our resources (not exploiting them or wasting mercilessly those already available) is disappointing. Pakistan's fiscal crisis has captured the attention of economic policy makers .and clearly, its high debt, low growth, and high real interest rate payments of eight per cent are a volatile mix that could lead to explosive debt increases in the near future, says the World Bank in its latest report, "Poverty in Pakistan: Vulnerabilities, Social Gaps and Rural Dynamic", which has been termed for official use as "classified" and "confidential", but published by Pakistani Press widely and prominently. The report reveals that "in the 1980s and early 1990s, the emerging debt and growth crisis was disguised by substantial external flows. These flows, from international lenders and remittances, dropped off long ago: official remittances from migrant workers declined from over 10 per cent of the GDP at their peak in 1983 to 2.3 per cent by 1996, creating the crisis atmosphere now surrounding the national debt. However, the newly-emergent crisis atmosphere surrounding debt is matched by the chronic, but more silent crisis of the growing social gap". In the past, governance problems have precipitated a vicious circle in Pakistan: a focus on fiscal policies that de-emphasized social spending; were implemented with excessive leakage and insufficient attention to efficiency and equity; and eventually gave rise to serious fiscal and social gaps. A different strategy, focused on governance reforms, can create a virtuous circle, in which growth is accelerated and resources are freed for spending, helping to effectively close both the social and fiscal gaps. It was due to sheer failure in good governance and better fiscal management that Pakistan is still faced with acute economic problems with lower growth rate. The misutilisation of debts has created a situation where we are victims of our own wrongdoings but always keep on blaming others for our failures. Had we adopted the right course the things would have been much different today. If the $58 billion in development assistance provided to Pakistan between 1960 and 1999 had been invested during this time to yield a moderate real return of 6 per cent, it would have grown into assets equal to $239 billion in 1998, Many times Pakistan's current external debt. Instead, this debt now stands at 92 per cent of GDP, and is in and of itself a constraint on growth. The governance uncertainties have a strong negative impact on growth. The International Country Rick Guide, published by Political Risk Services (Syracuse, New York), rates countries according to bureaucratic quality, rule of law and corruption; three key ratings, on a scale of 1 to 18, is associated with a one percentage point increase in the yearly rate of per capita income growth in the countries surveyed. It shows that if Pakistan had exhibited similar performance with respect to the rule of law, bureaucratic quality and corruption as Singapore during the 1990s, per capita income in the year 2000 would have been $ 300 higher. Even achieving the Indian governance indicators during the 1990s would have raised per capita incomes in Pakistan by $ 100 by the year 2000. The remaining chapters of the World Bank report discuss the many specific ways in which government spending and policy decisions contribute to the social gap. These cover: Allocation concerns in health and education, to a range of barriers to market access that confront the rural poor. Social sector reforms that ignore the difficulties that the poor face in holding the government accountable, and the important role that local elites play in this regard. Incomplete understanding of the relevant social and political context meant that the Social Action Plan (SAP) placed excessive emphasis on the creation of parent associations that could not exercise influence, and dedicated insufficient human and financial resources to circumventing and overcoming institutional and social obstacles. Lack of accountability that needs to be improved by in-creased democratization, decentralisation, and transparency. Improvement of the investment climate and, the prospects for poverty reduction that will emerge only when narrow groups that have been able to target benefits to their and their constituents' interests are forced to take in to account broader needs, including the needs of women and other disadvantaged groups and classes. The importance of good macro-economic policies and the need for continuing attention to the fiscal gap in regards to which particularly attention should be focused on promoting growth through governance reforms. Identification of the major policy challenges of the rural sector, including the need for a coordinated strategy that address some critical constraints such as access to assets, particularly land, access to credit, non-farm opportunities and in infrastructure. Priorities for poverty alleviation, and identifying relevant challenges and lessons for stakeholders, including governments and N. G. Os. This report of the World Bank is an eye opener for the Government and foreign-sponsored economic managers, who keep on chanting the slogans of sab acha hai [All is well]. They must look at the stark realities and stop manipulating the statistics. There is an urgent need to come out of figures-game and the governments must tell the people the truth. The most worrisome sector of economy is agriculture. There are tall talks of corporate farming without perceiving mundane realities. The rural population is constantly being pushed below the poverty line making all the targets of growth unachievable. Keeping in view the fact that nearly one-fourth of the total G.D.P. and 44% of total employment is generated in the agricultural sector, means that the country can never progress unless the rural population (constituting 67.5% of the total population) is taken care of. If we have to develop economically, agriculture will have to play a critical role in the fight against poverty. A significant segment of the rural population is still not getting the minimum nutritional diet as indicated in a recent survey by the International Labour Organization that observes "75% of the farmers operating farms under twenty five acres suffered the decline in the quality of diet while over 25% suffered a reduction in the quantity of diet". The dismal performance in agriculture during the last two years has affected the entire economy of Pakistan. Vital areas like mechanization, irrigation, plant protection and improved seeds have not been given proper attention although on papers there are many departments (including agricultural universities) spending millions and millions on claiming to have achieved wonders. Though in reality even the issue of loans to small farmers is nothing but just another scandalous affair where a few are making huge money in the name of poor farmers. The planners have never bothered to look forward and provide for an efficient irrigation system. The result is acute water shortage hampering the already depressing agricultural sector. The continuation of drought in some areas has further worsened the availability of water and the catastrophic effect is admitted by the official quarters in the Economic Survey 2001-2002: "Drought that hit the agriculture last year not only continued with severity but resulted in water shortages of up to 51% of the normal supplies during the fiscal year 2001-02." The oft-repeated claims of self-praise are to please the foreign donors who are making most of the policies ensuring that instead of high growth we should go for more and more revenues whether due or not. The few self-styled experts are talking about more revenues without determining the incidence of taxation. The industries are already over-taxed but instead of getting any relief, these are being asked to pay exorbitant taxes and also act as withholding agents for the State. The new Income Tax Rules, 2002 impose a number of obligations on them to file periodic reconciliation statements of taxes withheld and deposited in the Government Treasury. This work is to be done without any, reimbursement of cost for the withholding agents. On top of it a draconian sword hangs for any default not committed wilfully. There is no political will to tax the mighty sections of the society and the entire tax burden is being shifted on the poor through indirect taxes either in the form of VAT or presumptive taxes in the so-called direct taxes. This does not end the list of problems: avoidable imports continue, rulers keep on indulging in wasteful expenditures, trade deficit remains worryingly large, inflation persists as a major headache, no acceleration in exports, and domestic industry remains both high cost and uncompetitive, while growing steadily obsolete. Overall growth strategy is lop-sided as it does not take into account the role of rural population in the economy. The single-most factor that 76.5% of the country's population living in the rural areas are directly or indirectly linked with agriculture for their livelihood, has been totally ignored by the planners and economic managers. Whatever happens to agriculture is bound to affect not only the country's growth performance but to an overwhelming segment of the country's population. It is shocking to note that official statistics completely ignore women's role in the agricultural productivity. No attention has been given by the administrators and planners to determine and productively use the position of women in our rural society. No official census has ever taken into account the contribution of rural women as a productive economic force although they contribute a lot towards their families and agricultural productivity. It is a fact that an average workday of a village woman consists of fourteen hours or more. Her daily routine includes animal care, collecting, carrying and preparing fodder. Other major activities are milking and churning, cooking and carrying food to the fields. Planting, harvesting and processing seasons intensify the physical labour of the village women. During the wheat harvest they spend on an average ten hours a day in the fields in addition to their routine work. The same is true during rice planting, cotton sowing and picking, and cultivation of other crops. It is a strange economic perception which does not take into account half of the nation's population. Economic empowerment of women is a pre-requisite for economic growth but neither the official economists nor the foreign donors have given a serious thought to this ignored area. For a sustainable economic growth and alleviation of poverty long-term policies are needed where focal points are economic emancipation of women and rapid education of the masses. In simpler terms what is required is not presentation of certain figures (most of the time based on some jugglery of percentages etc.) but to invest money in various projects that are capable of yielding enough employment and production. At the same time the social sector development should be ensured, as economic growth in isolation to social uplift is meaningless. The grim reality of Pakistan is the habit on the part of the rulers to indulge in self-praise without realizing how disastrous this act can be. All the governments, including the present one, pretend that serious economic problems can easily be disguised by statistical sleight of hand. This might be understandable from the political point of view where the purpose is to cheat the voter but for a regime claiming to have a professional team with no electoral stakes, it is a lamentable act. Do they need to be reminded that self-praise is no recommendation?