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Economic indicators point to govt's focus on good governance

HARIS ZAMIR

KARACHI: The first 100 days of the military rule focused on improving governance and accountability and the key economic indicators revived after a prolonged depression in the country. The Karachi Stock Exchange showed a boost of 29 percent and exports increased by 9.4 percent and imports by 9.2 percent. The revenue collection up by 18 percent.

The policy track record of the military administration, which took charge of the country on October 12, 1999 dismissing the Nawaz Sharif's government, has one clear theme Ñ focus on improving governance and accountability with laying down a medium-term economic policy framework.

The stock market can be fairly termed as the barometer for expectations and confidence of investors in the government. Since October 12, the index rose by 29 percent to 1626 level, breaching the post-nuclear barrier attained in May 1998. "The bullish sentiment is still prevailing and the growth was mainly fuelled by the deregulation and privatisation initiative displayed by the government", Mohammad Suhail, head of research at IP Securities, said.

The revenue collection, according to an estimate by an independent analyst, was 18 percent higher in the 100 days, to Rs 85 billion, since October 12, 1999. Export recorded an increase of 9.4 percent, to $1.486 billion, imports settled at $1.677 billion, showing a rise of 9.2 percent, which showed that industrial activity in the country was reviving. The trade deficit in the period under review moved up by eight percent, to $191 million.

Foreign exchange reserves are down by eight percent, to $1.469 billion, mainly because the government paid continuously its foreign debts owed to international airlines, shipping agencies and coupon payment on one of its Eurobonds. Another big factor for the slide was that the State Bank of Pakistan cleared nearly $38 million owed to foreign investors earnings made through sale of shares at the Karachi Stock Exchange (KSE).

There has been a feather in the cap of the government efforts, which was quite symbolic one as the recovery made was of more than Rs 10 billion from loan defaulters and rescheduling of another Rs 30 billion. However, analysts say that foreclosure laws must be enacted swiftly in order not to lose momentum of streamlining the banking sector and developing a banking culture out of the claws of the political clout.

The policy framework announced by the Chief Executive last month appeared to be sound and reasonable but implementation would be the final test which observers, investors and general public would used as the government's seriousness towards reforms. So far it has created doubts in people's mind about the government's will to implement key reforms, particularly related to imposition of general sales tax across the board, agriculture tax and widening the tax net while documenting the economy.

To be fair, re-organisation of CBR has already begun and implementation of GST has boosted tax revenues for the first half of the 1999-2000 which closed at Rs. 157 billion, higher by Rs 26 billion, compared to same period last year. But economic observers claim that more could be achieved if the tax collection machinery was made more effective, professional and accountable. The revenue collection target for the whole financial year has been set at Rs 356 billion.

Several initiatives are underway under the umbrella of the Economic Advisory Board and its sub-committee. Recommendations have been made but a clear-cut policy is yet to be seen on the economic front.

A leading analyst said that investor confidence, on which the Chief Executive laid so much emphasis right from his first speech, could only be restored when concrete action leading to tangible results would become visible.

The reduction in interest rates on national saving schemes, clearing the backlog of capital repatriation funds, positive moves towards resolving the IPPs issue are good initial steps but they must be followed up by other complementary policies within weeks, rather than months, for investors to develop a sense of confidence regarding government policies.

As far as the overall economic growth is concerned, the good crops of the cotton, wheat and rice would help GDP growth rate reaching four percent in the current fiscal year.

Inflation continued to remain on low side due to both blow trend in domestic demand and the low inflation environment at the global level. This should help the government to focus on development spending without serious risk of crowding out private sector and also without excessively busting the budget deficit target agreed with the IMF under the debt restructuring plan.

The improved outlook has been connected to bumper cotton crop that was purely the results of efforts undertaken by the previous government. Furthermore, the under-performance in 1998 due to the nuclear detonations also played a major role in making the current indicators positive. Thus, a hundred percent credit cannot be extended to the present government for the improved economic outlook, an independent economic expert said.

The Chief Executive has not given any timetable for the restoration of democracy. Several think-tanks of the government are actively involved in assessing various forms of local representatives at the grassroots levels. It is expected that some indications of government plans for local representatives by the year-end would emerge in the next couple of months.

They said that if this happens it will be a boost to the general confidence domestically and go some way in mitigating international financial institution confidence over the non-democratic nature of the present administration.