Growth in Pakistan: A Precarious Phenomenon

uh-oh. my calculation in my post #33 point 3 was incorrect. two year growth rate in defense spending was 23% and not 11% as i had stated. apologies for the confusion caused.

dude, here is the link to the page you are referring to in your last post. once again, information indicates that you are being economical with the truth:

http://www.finance.gov.pk/survey/chapters/05-Fiscal.PDF

here are some inconvenient details that you left out:

1. in 2004-05, govt committed to spend rs. 202 bn on psdp. this represents 17% increase over 2003-04 level. there is an operational shortfall of rs. 14bn or 6% of total psdp. shortfall represent an insignificant amount.

2. psdp commitments in 2004-05 was higher than budgeted defense expenditure.

3. two year growth rate of psdp (development expenditure) was 56% VS. 11% for defense

4. difference in growth rate between defence spending and psdp is even more dramatic when 2005-06 budget is taken into account.

5. unlike what you state in #31, expenditure to gdp ratio is mentioned on page 61

your other points are completely absurd and nonsensical and not worthy of response.

dude, here is the link to the page you are referring to in your last post. once again, information indicates that you are being economical with the truth:

http://www.finance.gov.pk/survey/chapters/05-Fiscal.PDF

here are some inconvenient details that you left out:

1. in 2004-05, govt committed to spend rs. 202 bn on psdp. this represents 17% increase over 2003-04 level. there is an operational shortfall of rs. 14bn or 6% of total psdp. shortfall represent an insignificant amount.

2. psdp commitments in 2004-05 was higher than budgeted defense expenditure.

3. two year growth rate of psdp (development expenditure) was 56% VS. 11% for defense

4. difference in growth rate of defence is even more dramatic when 2005-06 budget is taken into account.

5. unlike what you state in #31, expenditure to gdp ratio is mentioned on page 61

your other points are completely absurd and nonsensical and not worthy of response.

Now lets see

Total revenue in absoluite terms increased
so does interest payments on debt increased as well as defence expenditure
Look at the page 56 of Economic survey

the dev budget increased but to a small fraction

Budget defecit witnessed an increase (can you tell me why)

Now figures are fudged like how they have been presented

However the last section of the table comprised of the same figure but as GDOP ratio
SO the govt claimed

Budget defecit, defence, interst payments all fell as a percentage of GDP, however they didnt give dev expenditure as a percentage of gdp, because it would have shown far greater decline.

There is a very interesting table at page 63 abt public debt which carries this note:
Beginning from 1999-2000, Pakistan`s GDP was rebased at 1999-2000 prices from two decades old base of 1980-81. therefore , wherever, GDP appears in denominator the number prior to 1999-2000 are not comparable.


However the table belongs to the scetion where the survey does compare debt for periods from 70s to todate. Should they have done that?

And crux of the matter is we are not running a time series regression analysis here but commenting on the performance of govt of Pakistan for the current fiscal year.
Thus absolute numbers are way more relevant than GDP ratios. Simple reason being high values of GDP witnessed this year. Only in case of a regression analysis, where we like to capture the trend it is appropriate to get GDO ratios.
With GDP ratios what at best we can conclude is Pakistan is moving towards the right direction. A guess. However unfortunately this is only one year in 57 years in the history of this country. Currently there is no trend . ANything would be an anticipation. You shouldve got my point in the finishing lines of the article. I appreciated this trend as well.

But since one should know the reality behind these figures, a neutral analysis is necessary. The reality is that debt, defence and interest payments have increased in absolute number.The dev budget has been ignored and the poor have been ignored. Inflation has been raised. Cost of borrowing raised to a much greater extent then returns on deposit. Agriculture performed largely due to good weather. Growth owe it to the financial sector more than anything else.

I think I stand quite correct on my statements.

Re: # 29

great post faisal
i guess we are in for an interesting discussion
i am quite busy couple of days so lets see if i can go in details
but ill try

dude, once again, your post is full of crappola which should not be a surprise cause you appear to have comprehension skills of a nine year old repeating doorsi jamat. consider:

1. report is by state bank of pak and not by business recorder as you state. there is big difference between the two and that should be obvious even to you.

2. base year before change was 1980-81 and not ``1990``s as you state. here is the reference for it:

http://www.jang.com.pk/thenews/may2005-daily/18-05-2005/main/main3.htm

your misstatement of the base year further reinforces the point i have been making here which is that at best, you are an ignoramus and at worst, you are a liar who has no qualms about twisting facts.

3. there was a perfectly legitimate rationale for changing base year. structure of pak economy was in 1980 was much different from what it is today. back then, agriculture sector had a much greater share of the economy relative to the industrial sector than it does today. also back then, pak had 80k phone lines and now, it has 15 mn. base year was changed to reflect these changes.

4. other countries transitioning from agrarian to industrial economies also change base years. in late 90`s india changed base year to 1993-1994 from 1980-81. indonesia has changed gdp base year even more frequently. google to get more details on this.

5. gdp numbers for the last five years used in sbp report are based on the new base year. therefore your point about recent comparison being invalid is incorrect. verify this from spb`s website

6. in your article above, you yourself are using numbers computed using the new base year. why did you use the data if you claim that numbers are fudged? in fact in the article you clearly state that ``fastest growing economy of the South Asian region``. what led you this conclusion?

7. government revenue number is a flow number and not based on gdp base year calculation. the part you yourself have posted indicates that public debt as percentage of revenue is declining.

waisay, i have often wondered what happens to matric section types in pak who pass exams through cheating? some of them it seems end up writing crappy articles on chowk.

Re: # 27
This is what business recorder says.
Now it is debt over gdp ratio rather than debt, it is talking about. Secondly the base year has been changed to 2000 from 1990s when GDP growth was minmul. This is a cooked figure my friend. Lets talk about absolute figures and also the ratios if they are comparable.

````Public debt burden continues to decline rather sharply over the last five years with significant improvement in fiscal situation. The public debt to GDP ratio, which stood at 85 percent in 1999-2000, has declined sharply to 59.4 percent in 2004-05 - almost 26 percentage points reduction in debt burden in just five years is one of the significant achievements of the government. And DAWn BR has roudly published all these fudged figures. What a take dude :P

During the year, public debt as percentage of GDP declined from 67.7 percent to 59.4 percent - an 8.3 percentage decline in one year is other stellar occurrences of the current year. Since public debt is a charge on the budget, its burden must be viewed in relation to government revenue. Public debt was 473.4 percent of total revenue last year but declined to 457 percent this year - a decline of 16 percentage points is not a mean achievement.````

dude, once again, your comments have no basis in reality. report is not silent on the domestic debt situation in pak. instead, report very clearly states that pak`s domestic debt burden has been declining while external debt actually went up slightly last year. this is exactly the opposite of what you claim in your post #26.

http://www.brecorder.com/index.php?id=271071&currPageNo=1&query=&search=&term=&supDate=

``...Public debt burden continues to decline rather sharply over the last five years with significant improvement in fiscal situation. The public debt to GDP ratio, which stood at 85 percent in 1999-2000, has declined sharply to 59.4 percent in 2004-05 - almost 26 percentage points reduction in debt burden in just five years is one of the significant achievements of the government...``

also interest rates rose because of policy decision on the part of sbp to tighten monetary policy. please explain why asset prices did not fall with rising interest rates if there was a financial bubble in pak as you claim. please also explain the rise in borrowing by non-financial sector despite the steep rise in interest rates.

i am also still waiting to get a response to the factual mistakes i have pointed out. your failure to respond leads me to conclude that your article is based on outright lies, which would not be a surprise considering where this article is published.

Re: # 23

I accept the article doesnt not really cover issues in detail as I have touched upon several of them since I was briefly commenting on growth performance which is an outcome of myriad of variables.

There are many points which i have coverred in one sentence or so. e.g. i have claimed that debt is increasing. As the links provided by faisal, indeed debt is decreasing but it is foreign debt which has shown a decreasing trend. My take is domestic debt is increasing as the interest rates (lending rates) have witnessed a sharp increase. :)...However, strangely enough or coincidently enough the economic survey 2004-05 which has a chapetr about debt is silent about debt and overall debt situation of Pakistan. If I am wrong please correct me.

I didnt reply to faisal as it seems he has already made up his mind and seemingly his knowledge about economic and finacial issues are far deeper than mine (as what he claims) and thus not ready to give any weight to my arguments.

Anyway in this post ill like to bring the issue of debt as above and wanna have some discussion.

Ill cover the financial sector in much detail.:)

Agriculture sector and its productivity.

Manufacturing sector and role of skill bias tech boom.

then PRSP and SAPs.

and then education policies.


then defence and role of one man rule and institutional building.

(or simple might write another piece based on a discussion here :)...)

P.S. My statements would only make some sense or more sense if the other person takes into account the plight of poor of our country.

here are the views of s&p on pak completely contradicting claims made here. also pakistan`s liquidity position is better than most countries in the region. i will see if i can find comparitive data:

Summary: Pakistan (Islamic Republic of)

Publication date: 06-Feb-2005
Primary Credit Analyst(s): Agost Benard, Singapore (65) 6239-6347; agost_benard@standardandpoors.com
Secondary Credit Analyst(s): Takahira Ogawa, Singapore (65) 6239-6342; takahira_ogawa@standardandpoors.com


Credit Rating: BB/Stable/B B+/Stable/B


Rationale

The ratings on Pakistan reflect its sustained economic progress, declining debt and debt-servicing burdens, and moderate external liquidity position. Responsible economic management and gradual structural reforms have allowed its economy to expand at the fastest rate in over a decade in fiscal 2004. Real GDP growth was 6.4% in the fiscal year ended June 30, 2004, reflecting both cyclical factors and increasing domestic confidence. The outlook for GDP growth remains encouraging, thanks to recovery in the industrial sector and returning investment. Wide-ranging structural reforms implemented over the past few years have helped the economy to regain its footing, and made it much less vulnerable to shocks.

The government has remained steadfast in prudent fiscal management, thereby raising investor confidence. Pakistan`s general government deficits are likely to remain at moderate levels, despite an expected widening in the deficit (excluding grants) in fiscal 2005 to 3.8%, from 3.2% in fiscal 2004. This will preserve the government`s primary surpluses, which combined with privatization proceeds, will lower the debt burden as a ratio of GDP further in the medium term.

dude,

here is the link to the state bank report which completely contradicts your statement that there is no growth in real economic activity in pak. also please note the corresponding rise in interest rate in the same period:

http://www.brecorder.com/index.php?id=271071&currPageNo=1&query=&search=&term=&supDate=

...After four years of weak and fragile growth, this year has seen agriculture staging a smart recovery by posting a growth of 7.5 percent on the back of an unprecedented rise in the production of cotton (14.6 million bales) and wheat (21.1 million tons) crops. These two crops account for over 24 percent of the value added in agriculture.


...Manufacturing sector in general and large scale manufacturing in particular, continued to maintain their impressive performance for the second year in a row. Overall manufacturing, accounting for 18.3 percent of GDP, registered an impressive growth of 12.5 percent against the target of 10.2 percent and last year`s achievement of 14.1 percent.

...Construction sector has been one of the star performers of the fiscal year 2004-05. As against a sharp down turn of 6.9 percent last year, this sector has recorded equally sharp upturn of 6.2 percent this year.

...Investment is a key determinant of growth. During the fiscal year 2004-05, gross fixed capital formation or domestic fixed investment grew by 15.6 percent as against a sharp rise of 17.4 percent last year. Private sector investment grew by 19.3 percent this year as against a growth of 9.6 percent last year.

...The benchmark 6-months T-bill rate was hiked by 500 basis points since June 2004 to 7.08 percent by April 2005. Of late, the State Bank of Pakistan raised the discount rate by 150 basis points (bps) to 9.0 percent in April 2005 from 7.5 percent in November 2002, strongly signaling the increase in the lending rates....``

here is how international bond markets have reacted to the news coming out of pak. graph is for pak`s 5 sovereign launched last year;




we can discuss other issues once you provide an explanation of why reality is so different from the picture you paint.

Re: # 6 faisaluno

Faisal sahib

I think you are a bit too harsh and emotive in your condemnation of the author. You may not like the content of the article, but your reaction is more from the heart then the head.

Many of the arguments you give to refute him are themself based on precarious premises. Unfortunately, the author has not been able to argue some of his points too well, so they appear to lack substance. But in gist much of what he writes has a grain of truth to it.

The fundamental difficulty I see in this whole debate (from both sides) is a lack of distinction between the statistics that describe the real economic achievements as opposed to financial economic development.

Unfortunately, I wasn`t around Chowk much for the past several weeks and didn`t see this article until just now. But its late and I have a long day ahead. If the piece survives for another day or two I`d love to elaborate more. There are some very critical questions here that need to be looked at deeper.

Pakistan is now in the hands of the bankers and brokers. The paper shufflers, in other words. Those that don`t get their finger nails dirty and live high on the hog. Whenever a depressed cash economy is inflated and leveraged an apparent boom comes about. That is what is happening in Pakistan under that Citibank bagman, Shaukat Aziz. This is what happened in France under the economic stuartship of John Law. Look it up. You`ll see the unmistakable parallels.

And yes, please don`t go around quoting brokerage house reports as impartial and authentic sources. Anyone who has a financial incintive will loudly appreciate the emperors new clothes and will not dare call him naked. The brokers and bankers are having a field day in Pakistan, and I dare say they will continue to do so for some time.

Got to go now... maybe later,

best regards

...SR

Re: # 20
:) sorry faithless
earlier post was written without going to the blog. I thought it would be some hate propaganda. Well perceptions are indeed most of the times deceptive. I just visited your blog and yeah it turned out that you have some honest judgements and analysis to put forward on Pakistan.
It was nice to read your posts. Keep it up. We can only change our destinies by being honest and objective. I hope we would change this hopeless situation prevailing in the country esspecially for the masses someday soon.

Cheers

So, as an indian , as an american i have learnt after reading this article that the pak economy is precarious indeed!!!.Abdul Kalam and Manmohan Singh i`m sure will be having a good laugh when the subject of the pak economy comes up at their nest meeting , if at all it does.

>BTW whats with your blog man. Dont be so faithless!

Just telling it like it is Mamoon - and pulling no punches - much the same way you`ve so excellently done here by the way.

Faithless-Pakistani,
http://pakistan-sucks.blogspot.com

Re: # 14
BTW whats with your blog man. Dont be so faithless!

Re: # 14
BTW whats with your blog man. Dont be so faithless!

Re: # 14
BTW whats with your blog man. Dont be so faithless!

Re: # 14
BTW whats with your blog man. Dont be so faithless!

Re: # 14its good to know someone understands what i was talking aboout
you are right on mark...the artificial bubble created by privatization spree of telecoms and financial institutes is soon gonna end......
no wonder our stock market was the best performing one.....
...whether it would be sustainable is any body`s guess
cheers

>it seems Pakistani economy is entrapped in a financial bubble and excess money is circulating in the hands of the few urban elite.

Yes, and this bubble is going to burst just as soon as the revenue margins from extensive privitization begin to slowly permeate into the coffers of you guessed it, the Usual Suspects in this mockery of a country. The current growth rate of our economy is misleading at best.

Faithless-Pakistani,

http://pakistan-sucks.blogspot.com

the proof will be in the pudding.

with real growth is an increase in consumption, pakistan being a large country, there will be an FDI bee-line to participate in the gravy. i thunks some of the indian banias see it already.

Re: # 11

Oh!.So, the IMF`s numbers on GDP are all cooked up and incorrect.So, China`s absolute GDP isn`t $1843 billion??.I thought that was quite cool.I admire the chinese for playing the game of international commerce quite well.If all numbers are cooked up, then Pakistan`s boast of 8.4% GDP growth is also cooked up, right?.Maybe you should exponate a new system for measuring a country`s GDP.Get a life my friend.

Re: # 9
Growth rates are just statistical and mathematical numbers and don`t tell everything. It is the absolute number of $ or Rs that goes into the pocket of a person is important. In sicxties when China was penallized for everything, Chinese politicians would boast that steel (or some cereal food production) production jumped by say 1000% or similar things. What does that mean ? Previous year, it was 100,000 tonnes and next year it jumped to 1million! Is 1million big or small

Playing with numbers don`t tell the real story!

the fact that you site something you have written yourself in a rag like asia times online tells me that you are more out of touch with reality than i had imagined. with regards to your broader claims, i am having a hard time understanding what you are saying cause you dont know how to express yourself very well. as far as i can tell, you are claiming that all asset prices have risen in pak due to an increase in m2. this claim is completely absurd. m2 growth in pak has been no different from that in other asian countries like india and indonesia. also as the the sbp report indicates m2 growth has been driven by a huge increase in credit demand which means that money has gone into the the real sector rather than into the financial markets:

http://www.brecorder.com/index.php?id=271071&currPageNo=1&query=&search=&term=&supDate=

``...During the first nine months (July - March) of the fiscal year, broad money has registered a growth of 13.1 percent as against the full-year target of 14.5 percent and last year`s growth of 12.3 percent in the same period. The growth of broad money is largely driven (84%) by expansion in net domestic assets (NDA) which was itself triggered by unprecedented rise in the credit to private sector (Rs 370 billion). The net foreign assets (NFA) contributed only 16 percent to monetary expansion.

The extremely buoyant attitude of the private sector can be viewed by the fact that the cumulative borrowing of this sector during the last three years amounted to Rs 863 billion as against the cumulative borrowing of Rs 580 billion in the previous ten years (1992-2002). More importantly, credit to private sector as percentage of GDP surged from almost 20 percent in 1999-2000 to over 25 percent in 2004-05 - almost 5 percentage point`s increase in the last six years.

The distribution of credit to private sector was highly broad-based as almost all sectors of the economy availed substantial credit. Of course, manufacturing sector claimed 41 percent in the net credit expansion to private sector. Within manufacturing, textile sector received the lion share (62.8%)...``

your other points about growth strategy are completely wacky and dont deserve a serious response.

````````The only country in the region, which comes close to Pakistan in its growth performance, is India growing at a rate of 7.3 percent. In larger Asia, Pakistan stands with the likes of Singapore, Honk Kong and China which are the contemporary economic giants and have followed a growth pattern much similar to that of Pakistan this year.````````


Fer Jiminy!!!.I am at a loss for words.Comparing a low level economy such as pakistan , which is going through what is commonly known as a ``catch-up`` effect in the economic world with the likes of China and India, Hong Kong even!!!.Hey, Guinea has a GDP growth rate of 20% this year.It is the world`s largest GROWING economy!!.I produce facts and figures to support my case.

China GDP according to IMF:
Absolute GDP is $1843 billion
PPP GDP is $8091billion

Indian GDP according to IMF:
Absolute GDP is $750 billion
PPP GDP is $3603 billion

Pakistan GDP according to IMF:
Absolute GDP is $91 billion
PPP GDP is $392 billion

Is there a comparison??.Check with the IMF for the accuracy of the above figures.Another wasteful provocation is what this article is as far as indians are concerned.

Re: # 6

yes you are right , in case of high growth rates rich people have always benefitted in developing countries than the poor. This was the story of structural adjustment plans of 1980s and 1990s. Now we have moved to poverty reduction strategy and the dynamics have changed. Now growth is not the policy objective but poverty allevation is. The assumption that growth will trickle down to alleviate poverty has been refuted by the evidence of 1980s and 1990s. please read this link below to get a brief of what kind of policy outcomes are expected under PRSPs and how different they are from the era of SAP.

http://www.atimes.com/atimes/South_Asia/FC25Df06.html

Regarding China, increasing inequalities are a definite problem. How ever it is much more complicated than growth having unequal effects. The problem is that processes of growth might carry unequal effects and we need to align these pro grwth processes to pro poor outcomes. e.g. Over investmenst in higher education transform a segment of society into highly skilled whereby a portion is left out. International trade in services/outsourcing favors skilled labor over unskilled. In China as well wages of skilled labor are rising as compared to unskilled one. However since China is today a hub of foreign investment and outsourcing, they are getting away with inequality. But Pakistan is not China neither we are in a position to compete with China. So we have to be care ful while following a certain policy or devicing one.

Regarding finacial bubble, so much activity in financial sector shows that we are witnessing a bubble type situation. I havent gone into detail with financial indicator but M2 has currency in circulation + demand and time deposits. Well the growth of M2 which shows finacial dev is primarily due to currency in circulation. Rising inflation is clear evidence to this regard.

Couple of Months ago, Governer State Bank in an interview with ARY told that State Bank is planning to print 5000 ruppee note. Upon the query why , he asnwerred ``well now 5000 ruppees is equal to 100 dollars`.
Well this statement tells a lot about our exchange rate situation as well as the fact that we have excess money in our hands.

regarding the spread in deposit rate and lending rate, there is huge amount of literature available in financial economics which suggests the increasing spread between deposit and lending rate is an indicator of finacial repression not financial development. Interest rate spread is one of the barometers we can check the health of the financial sector/ to know whether things are moving in the right direction.

for people interested in knowing what the market thinks of budget, here are the views of one of the major brokerages in pak. please note the comment on development expenditure (PSDP) which clearly indicates that this article has information which is completely wrong:


AKD Daily

Tuesday June 07, 2005

Review of FY06 Budget: Betting on Growth

The FY06 federal budget is a landmark for Pakistan. We commend and
congratulate the Prime Minster, Mr. Shaukat Aziz, the Federal Minister, Mr.
Omar Ayub Khan, Advisor to PM on Finance, Mr. Salman Shah and the
Ministry of Finance for having broken out of historical mind set. They have
a presented a bold and pro-growth budget, which we feel should have far
reaching positive structural implications for Pakistan’s economy.

This is a business and industry friendly budget with emphasis on facilitating the
growth of medium and small enterprises (SME’s), which generally are considered
major source of employment generation the world over. We believe that the new
concept of small corporate entity introduced in this budget, with capital and
reserves of PkR25mn and annual turnover not exceeding PkR200mn (but not
formed through splitting up or reconstitution of existing business), allowed a 20%
flat rate income tax and exemption from turnover tax are absolute firsts and
nothing short of revolutionary for a country like Pakistan. At the same time, the
budget also caters to lower fixed income groups and strongly emphasizes
developments aspects.

Overall, the fundamental precepts of the budget, in our view, are as under:

1) Position Pakistan as a major player in the global textile trade by giving
opportunities for this industry to become a regional export powerhouse. Given
textile and other exporting industries’ critical position in non-farm employment and
income generation, incentives provided to them in the budget are a major positive
in our view.

2) Provide significant relief to the salaried class both in terms of reduction in
personal tax rate as well as hikes in public sector employee salaries, while
increasing benefits to pensioners and fixed income groups.

3) General reduction in tariffs and corporate taxes. This would allow the
government to avoid any charges of not conforming to WTO requirements. In our
view, this would also help government to negotiate access to developed markets
from a more strong position.

4) Significant increase in the Public Sector Development Program (PSDP), by
over 34%, should support infrastructure growth and social sector development
thus helping enhance employment and incomes, thereby alleviating the high
poverty levels.

In our view the government has chosen to take a calculated yet bold risk by
proposing a highly expansionary budget while also reducing red tape and
tariff anomalies as well as directly providing support to the middle-income
groups.

We believe that the key risk of an over-heating economy and inflation remain in
the background but the government appears to have put its hopes on real GDP
growth of 6-8% which may contain these pressures. The fact that the federal
budget deficit is targeted to rise to 3.8% of GDP in FY06 is a matter of concern.
However if the tax revenue base increases permanently this may be brought
under control in the future. Further, if the agricultural sector, driven as it is by
weather conditions, comes up to expectations we feel that the government may
indeed pull-off another successful fiscal year. And in the process, maintain the
current high economic growth trajectory.

a badly written piece containing crap analysis, logical inconsistencies, absurd claims and outright falsehoods - or in other words, a typical chowk article. in developing countries experiencing high growth rates, rich people people always benefit more compared to poor people. this is even true of a communist country like china:

http://www.forbes.com/markets/feeds/afx/2005/06/19/afx2099852.html

BEIJING (AFX) - China`s income gap widened in the first quarter of the year, with 10 pct of the nation`s richest people enjoying 45 pct of the country`s wealth, Xinhua news agency reported, citing a survey by the National Bureau of Statistics.

China`s poorest 10 pct had only 1.4 pct of the nation`s wealth, the report said.

...`The income gap issue will not become smaller in the next 10 years, but probably will increasingly widen,` Fan Gang, a leading economist at the National Economic Research Institute of China told Xinhua...``

and for the claim that growth in defence budget will cause economic slow down, lets once again look at china:

http://www.asianews.it/view.php?l=en&art=3382

Beijing (AsiaNews/Agencies) – Mainland defence spending for 2005 is expected to maintain double-digit growth and hit 230 billion yuan .. ``

and i have no idea what the author means by a currency bubble? if reference is to value of the rupee, than the claim is completely idiotic given that after inflow from ptcl privatisation, pak`s foreign currency reserves are going to rise by 18% which will actually put a downward pressure on rupee. as for the claim that there is a financial bubble, etisalat paid a 95% premium on the share price for ptcl - an indication that pak market is under-valued.

also a word of advice to chowk-staff. you should stick tp publishing articles on subjects that you have a clue about which is very little i suspect. otherwise you get exposed for what you are.

Pakistanis say that their economy grew at 8.4% for the previous fiscal year. Lets see if this growth rate can be sustained. Which should be difficult , with rising oil prices , an expected slackening of US interest , high inflation etc. Pakistanis tend to get carried away far too easily. This was evident in the days of Karachi Stock Exchange index crossing 10,000 points , only to register a sharp fall and stabilise around 6000.


By the way , India grew at 7.3% the previous year , and 8.5% the year before. If the avg. of last 5-10-15 years are taken into context , India`s economic growth rate by far exceeds that of Pakistan`s.

Well you said, and I quote:
The obsession with growth has also resulted in an education policy..... education policy is further elevating the disparities between the rural and urban which is again a direct threat to the success of PRSPs in Pakistan.

But, in-order to increase the manufacturing and services productivity, it is the high education workforce comes to play. With limited higher studies institutes in the nation, they are not catering for the already present large number of high school graduates that get good higher-education. Increasing the elementary school budget would actually cause more highschool grads competing for the allready limited number of urbanized-for-the-rich-education that is there.

What do you people think...? A reply would be highly appreciated.

The only thing that dictates rise in per captia income is productivity. Unless the productivity of Pakistani farmer increases dramatically they will remain poor. Prices of farm products are at best constant. Worse they can decline due to oversupply.

Peace with India is fine at the sentimental level. Unless there is a cut in the size of Pakistani military establishment there will be no material benefits. The operation of an oil pipeline is at least a decade away.

Pakistan is dependent on the West for both textile exports and concessional financial treatment

You make some good points, but your claims at certain points seem to be mere judgement calls, and unfounded in fact. Certain things that I would like you to elaborate on:

1) Is an all-consuming emphasis on agriculture pro-growth? Do you want the government policies to be more pro-agriculture, or pro-rural areas? Nevertheless, you have no basis for claiming that the 5.5 hike in agriculture growth WAS entirely due to government policy. Secondly, productivity growth, especially in agriculture has a long-term cycle, and one cannot make short-term judgement calls.

2) There are 2 very good reasons why there has been an increase in the spread between deposit rates and lending rates. Not all of it is bad for the common man. Let me elaborate. Deposit rates have been constantly low due to to the excess liquidity in the financial sector as a result of the high level of remittances in the past 4 years, and Pakistan`s stable position on the international financial front. The last 3 years have also seen investment incomes grow massively in Pakistan as a result of the stock market growth. Lending rates reflect both those investment income growth rates, and the increase in speculative borrowing. Keeping these two trends into account, I dont see how the common man is effected that badly. Though the upper-class does gain more from stock-market gains, it cannot be contested that the results of the stock market growth in the past 2 years have been distributed amongst the middle and lower classes as well. Assuming that the middle-income , lower-classes and pensioners dont exclusively invest in deposit accounts (fair assumption, as they stay away from banks, and invest in currency, mutual funds, savings certs, and stocks), there investment returns have certainly not been eroded in the same fashion as you describe.

3) Umm please give me more indicators on why you think there is a financial bubble forming in Pakistan. Comparisons with historical monetization aggregates, inflation aggregates, stock market ratios, etc. I am not convinced here.

4) The increase in inflation has been monetary yes, but a major reason has been a massive hike in oil prices also, which tends to affect all sectors including food. The government cant do much to control this.

5) ``excess money is circulating in the hands of the few urban elite``, what basis are you using to make this conclusion?

6) ``If anything, not only has it failed to trickle down to the poor``, any economist will tell you that trickle down is not an immediate process. as many of us are so inspired by indian stories, even there the increase in incomes has been mainly limited to urban areas. The government usually capitalize on this growth to create opportunities in other areas. Ditto for China, and also malaysia till 1995.

7) The increase in interest payments is natural of course, if you are to consider the fiscal debt. 8.5 is not a biggie. Another thing that needs to be considered is how much of this payment is going to domestic lenders, and how much to international lenders. This could have potentially changed, especially given the government`s initiative to remove its dependence on international lenders.

8) Investment in higher education is very necessary if you are to attract foreign investment here. It also helps cultivate teachers who will meet the primary education needs. New firms obviously employ not only highly skilled labor, but lowly-skilled workers too - in a way, not all too bad an outcome for the common man.

Lastly, besides talking in fiscal and interest rate terms, it would be informative if you were to provide data on employment, trade growth, investment growth, as they are equally important determinants of current economic prowess, and future progress. The government has been trying to make a good investment environment going forward, and in this regard trade links with India, and the United States could only provie beneficial. These accords have not only been made in manufacturing, but also in agriculture, which should be good for growth in agriculture especially.

The growth figures are commendable especially given the unrest in the economy in the earlier parts of this fiscal year, and in the last 2 months of the fiscal year.

More positive strides have been made in fiscal growth areas, which should augur well for development expenditures going forward.

The caution in this article is of course well-placed. But it is too cautious and somewhat self-contradictory:

1. the huge jump in funds for education has in fact benefitted large sections of the population. And parts of pakistan are beginning to already show results (near kohat, one of the more backward areas of pakistan, the literacy rate is now 65% - the highest anywhere in Pakistan!).

2. agricultural growth mentioned in this article means income increase at the grass roots - contrary to the concerns of growth not filtering down.

3. The article ignores international climate altogether - and here there has been a sea change: that is, there is no doubt that (1) the peace moves with India have benefitted the investment climate in the country, and more importantly created a more beneficial environment for the longer run - and the oil pipeline deal if it goes thru will generate a good deal of revenue, and (2) the US and UK are committed to economic growth in Pakistan.

So, the author needs to cheer up a bit I think. 8.4 % is not bad when accompanied by these other aspects mentioned above.