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Books on Pakistan
REPUBLICAN REFERENCE
Area (sq.km)
803,940
Population
162,419,946
Capital
Islamabad
Currency
Pakistani rupee
President
Pervez Musharraf
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Update No: 005 - (27/06/06)
How solid is the boom?
With its latest June survey, the ADB continues to view the prospects of the
Pakistani economy positively, forecasting GDP growth this year at 6-6.5%, mainly
on the strength of the manufacturing sector, which is estimated to be growing by
10% yearly, as shown by rising imports and rapidly growing private sector
credit. Manufacturing growth will more than offset the sluggish pace of the
agricultural sector. Economic growth is mainly fuelled by remittances, which
rose from US$1.5 billion in 2001 to the current US$4 billion, triggering an
investment boom, which Prime Minister Shaukat Aziz was ready to endorse with a
privatisation plan in the banking, cement, and utilities sectors. However,
increasingly economists wonder how solid the boom is, casting a critical eye on
the rapid rise of the Karachi stock exchange, which is now considered to be
greatly overvalued, and to the rapidly expanding consumer credit, which
contributes to fund an imports boom, of which over 60% are consumer goods. The
current accounts deficit is forecast by critical observers to rise to at least
4.3% and as much as 5% of GDP this year, adding to the worries.
A 'cannons and butter' budget
Observers have not been too impressed with the newly presented 2006-07
budget, on a number of counts. With the forthcoming elections and the pressure
from the IMF and other international organisations to reduce the burden of
military expenditure, it was expected that the defence share of the Pakistani
budget would have gone significantly down this year. Perhaps a reflection of the
increasingly precarious position of President Musharraf, Defence Expenditure
will rise by 12%, which will keep defence expenditure close to 5% to GDP
according to most estimates. India's still growing military expenditure is also
likely to have created the conditions for this increase. Due to the forthcoming
elections, social expenditure is also going up, pushing the budget deficit up
despite the expected large increase in revenue due to the ongoing privatisation
program. The deficit is targeted at a high 4.2% of GDP, although the 2005
earthquake is invoked as an explanation for failing to maintain the previous,
lower target. Some observers point out that the government has understated the
privatisation proceeds by as much as US$3.4 billion, leaving space for
additional expenditure in the months preceding the elections. On the whole
expenditure is to go up 19%, with peaks in development spending (up 52.6%),
especially health care, utilities and education, but the electoral climate is
also evident in the 15% increase in the wages of state employees, the 15-20%
increase in pension payments and widespread subsidies for oil products,
fertiliser, cement and foodstuff. Despite the government's commitment to expand
the revenue base, the measures taken in the budget are modest and will deliver
additional revenue corresponding to just 0.3% of GDP.
Walking the tightrope
The Pakistani government appears to be facing growing difficulties in
dealing with internal discontent and at the same time appease its American
allies. Islamabad seems to have opted to appease the Taleban militants in
Waziristan and to have renounced the military option, possibly judging it too
divisive for the country's security agencies. A strong sign in this direction,
apart from the decline in the level of fighting, was the appointment of a
sympathiser of the Taleban, Ali Muhammad Jan Orakzai, as governor of the North
West Frontier Province. However, this attitude is unnerving the Bush
Administration, which continues to send signals to Musharraf that it is unhappy
about the current trends. In June it was announced that the United States will
cut its foreign aid to Pakistan by US$350 million, explicitly citing as a reason
Pakistan's failure to improve democracy and human rights.
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