Pakistan in the grip of a major financial crisis

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: General Parvez Musharraf will not be able to come down to India to watch a cricket match anymore, having stepped down as the ruler of Pakistan recently. During the period of military regimes (32 years), Pakistan’s economy grew on an average, at 6.3% as compared to 4.7% under democratic rule.

Shahid Javed Burki, elaborating this in his book ‘Pakistan’s economy under Musharraf, 1999-2006,’ (Oxford University Press, 2007) contends that the military rulers were more successful in attracting large amounts of foreign capital, which poured in as the military was willing to work with the US in areas of strategic concern to the latter.

The author contends that it was the terrorist attacks on 9/11 that “returned the US to Pakistan”. Washington helped to reduce Pakistan’s external debt and provided both military and economic assistance as reward for this country’s role as a frontline state in its war against terrorism.

The resource flows induced no real and sustained progress, but instead fanned consumption and speculative bubbles in the stock and housing markets.

During the period 2002-06 Pakistan’s economy was truly buoyant with an average growth rate of around 7%. This high growth rate, however, needs to be underscored by the fact of economic downturn and low economic base during the first two years of Musharraf’s rule.

While it is true the military government of Musharraf had brought down the fiscal deficit as a percentage of GDP, by almost half the average level of the 1990s, the share of development and public investment in GDP had likewise been pruned. Thus, the burden of reduced public expenditure implied the axing of capital expenditure.

The other socio-economic indicators such as poverty, inequality and unemployment also deteriorated. In view of these trends, Burki had predicted that “economic theory has advanced enough to suggest that Pakistan in 2006 did not have the endogenous factors present in the economy to suggest that a high level of growth would be sustained well into the future”.

The State Bank of Pakistan, which released its third quarterly report in June 2008 covering the performance of the economy for the period July-March FY 2008, had brought down the projection of growth of Pakistan’s economy in the FY 2008 to 5.5-6.0%, well below the targeted 7.2%.