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September 15, 2017

Economic data bears out effectiveness of government policies


September 15, 2017


LAHORE: It looks policies of the present regime have started delivering results as both domestic uptake and exports are picking up and Pakistan is likely to post above 5.5 percent growth.

At a time when Pakistan is facing threats from the United States the things at the economic front are very encouraging. For example, remittances that are declining globally have grown above 3 percent in Pakistan in the first two months of the current fiscal year. Exports are also on upward trend.

Car sales registered a whopping increase of 28 percent. Cement consumption in domestic market registered an increase of over 20 percent in August. There is a healthy growth in production of motorcycles, tractors and home appliances. 

Agricultural outlook is also best this year compared with the previous three years. Inflation is still much below the budgetary target. Interest rates are still at the lowest level in two decades. 

Credit off-take has increased and textile sector is expected to invest more than $1 billion this year to upgrade technology – first such investment after 2005.

This is not a mirage, but a reality.  There are some sectors that claim that the economy is in regression only because their industries are posting weak growth.  They said the export package is so cleverly designed that after June the exporters have to show a growth of 10 percent to become eligible for the promised subsidies under the package. Those who used to rent seeking hoped that the new Prime Minister would be more receptive to their demands, but they are losing hope. But, they do not realise that it would be a folly to change policies that have started delivering. 

Low inflation has been a pleasant surprise for the consumers who were accustomed with double digit inflation.  Certainly, the policies have delivered, but the actual potential has not been achieved because of lack of governance. The governance has not improved much during the last four years. That is one of the major blemishes on this regime.  Though Pakistan’s transparency score in the Corruption Perception Index has improved during this period, the governance in the power sector has deteriorated instead of improving. If power sector governance had improved, the country’s transparency score would have been much higher.

The policies are yielding results as China-Pakistan Economic Corridor (CPEC) project is nearing completion. We never exploited our strategic location – a gateway to China and Russia. 

US government kept feeding us through grants and loans until we lost the capability to service their loans. CPEC is more important for China as it would substantially reduce transportation cost and it would become globally competitive in many sectors.  When China offered to finance the corridor no other country was ready to lend Pakistan even a penny. Chinese knew that and definitely exploited our weak position. But, what we are getting is much better than not having this infrastructure. With time we will recover over losses. It may take decades but a steady growth without foreign assistance would be ensured.

China is our neighbour, but we were not actually connected as the infrastructure was not there. Now, we will be physically connected to the world’s largest economy and would reap similar benefits that Mexico got from the US and Far East countries from Japan. 

We would have to improve our governance to benefit fully from this opportunity. Governance experts hoped that the new elected government would carry forward the development agenda.

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