Inflation, unemployment and poverty still major challenges

Rising inflation rates, unemployment and poverty are the major challenges facing Pakistan in establishing sustainable long-term growth of the national economy, currently expanding at a record rate of over eight percent, according to a recent government report. With a GDP growth rate of 8.4 percent, Pakistan is outstripped only by China and Singapore emerging as the third fastest growing economy of Asia in 2004-05, said the 'Economic Survey 2004-05' released on Saturday. Economic experts term the achievement as a great step forward. "The sustainability of growth rate and reduction in the rate of inflation and unemployment are the main challenges at the moment," Dr Zaffar Moeen Nasir of the Pakistan Institute of Development Economics (PIDE) told IRIN in the capital, Islamabad, on Monday. The overall GDP growth rate, said the survey, includes an impressive 7.5 percent growth in agriculture, 7.9 percent in the services sector and over 15 percent growth in large-scale manufacturing. "The highest ever production of two major crops of cotton [about 14.6 million bales] and wheat [over 21.1 million tons] has mainly contributed to overall high agricultural growth," Nadeem Malik, an Islamabad-based economist, told IRIN. However, the leading national English language daily 'Dawn' cautioned on Monday that "adverse global factors like rising oil prices, falling of the US dollar, rising inflation and interest rates have their own impact on developing economies like Pakistan's." Another important contributing factor to the unprecedented growth was international trade. "Pakistan's share in the previous years has not exceeded above US $20 billion but this year it is estimated at about $34 billion," Malik said. But the country faced a sharp increase in inflation rates at an eight year high in 2004-05, according to the survey, which peaked at 11.1 percent in April. Those living on fixed-incomes and the poor are the most vulnerable to high inflation rates and over 65 percent of the population of Pakistan has been estimated to be living on or below $2 per day. "During the last 12 to 18 months only, the prices of kitchen items has gone up almost 100 percent with an adverse impact on the vulnerable groups," Malik maintained. The growth rate was achieved in spite of the fact that the level of foreign direct investment (FDI), which generates and expands economic activity, remained low. Investment was secured through other means. "This year it has been estimated about $1 billion but a major chunk is again through privatisation and sale out of public organisations," Malik noted. "On the FDI scene, out of three major concerns, only macro-economic indicators are representing a positive look but other two important factors of political stability and regional security conditions are still lagging far behind the satisfactory status," Malik said, adding that without more investment, the rate of growth would be impossible to sustain. In the past, government spending has been focused on servicing existing debts and on defence spending at the expense of the development investment. However, this pattern is now changing and there are a number of positive signs according to economists. "The share of development allocations is increasing now. Against last year's 202 billion rupees (approximately $3.37 billion) for development, this year an estimated over 270 billion approximately $4.5 billion) have been apportioned for infrastructure building and other development schemes," Nasir explained. But allocations for the social sector and overall development lag behind the requirements of the population of over 150 million, still growing at 1.9 percent annually and suffering an unemployment rate of over 7.7 percent, Nadeem said. In Nadeem's opinion, the achievements of the economy should translate into a reduction of poverty and benefit for common man. "The general evidence to support any such improvement remains missing," he added. Dr Nadir at PIDE shared a similar view indicating the issue is one of continued and sustainable growth. "As the rural-based agriculture sector and urban-based manufacturing sector expand, it would help generate employment opportunities for both groups. In more general terms, it would help reduce poverty in the long term," he said. "With the same pace of economic growth for about next seven to 10 years would only help translate the real benefits to common man. There is no shortcut," Nasir added.