KICK-STARTING THE ECONOMY – IN THE LINE OF FIRE

KICK-STARTING THE ECONOMY

The item at the top of my agenda in 1999 was the revival of Pa­kistan’s sick economy. I have already described how our new team helped define our problems. Here, I will delve into some of the specifics, enough to convey a sense of what we faced, and what we have achieved.

Commercial banks and other financial institutions were riddled with cronyism. Public-sector enterprises were grossly mismanaged, and they formed a large part of our economy, including such companies as the Water and Power Development Authority, the Karachi Electric Supply Corporation, Pakistan Railway, Pakistan Steel Mills, Pakistan National Shipping Corporation, Pakistan International Airlines, the Cotton Export Corporation, and the Rice Export Corporation of Pakistan.

 

The persistence of large fiscal and current-account deficits, and the consequent public and external debt, were a major source of macro-economic imbalance in the 1990s. Tax revenues and exports were stagnant. Foreign-exchange inflows were declining.

 

Many people began to talk of Pakistan as a failed state. Our growth was slowing; investment rates were decelerating; and the external debt burden was ballooning, having grown from $20 billion to $39 billion between 1988 and 1999. We were overwhelmed by the cost of debt servicing, and our physical and human infrastructure was in distress. Poverty had almost doubled, from 18 percent in 1988 to 34 percent in 1999.

As a novice in economic policy making and management, I devoted my initial few months to assembling a team of technocrats in the fields of finance, commerce, trade, banking, and privatization so as to under-stand what really happened during the 1990 that had led to such a disastrous outcome. Only then could we formulate a strategy for economic revival. I outlined the broad framework of this strategy to the nation on December 15, 1999, but kept adjusting and fine-tuning it over the next six years. I wanted to ensure that our economic direction was clearly defined and known to everyone, particularly those in the private sector who had to make investment decisions, produce goods and services, and engage in trade.

 

With the help of my advisers, I realized early on that we had to avoid quick fixes and make some very tough decisions. I paid no heed to those who advised me that these decisions would cost me politically and my popularity would suffer. It was high time that we did the right things for the sake of our national interest rather than for personal or parochial interests. The strategy that emerged consisted of four objectives:

 

  • Achieving macroeconomic stability.

  • Making structural reforms to remove microeconomic distortions.

  • Improving the quality of economic governance.

  • Alleviating poverty.

 

We focused on these four objectives as part of an integrated strategy, because macroeconomic stability in the absence of structural reforms would prove to be short-lived. Structural reforms cannot be success-fully implemented if the quality of economic governance remains poor. The ultimate objective of all our efforts to revive the economy remained the alleviation of poverty. I was convinced that the interconnections between these four objectives were strong and that they had to be pursued together. This approach, of course, posed a dilemma. The results of such a strategy would not be visible for a few years. The majority of the people had been suffering hardship for almost a decade and wanted results now They had run out of patience. Nonetheless, I decided that I owed it to my country to provide a sustainable solution to our economic ills, even if it incurred some short-term displeasure.

 

Luck was not on our side in the initial few years, and the economy suffered serious shocks and reversals. An unprecedented drought lasted three years, hurting our agriculture and the rural economy. A global recession slowed demand for our exports. On top of everything else, India mobilized its troops on our borders, and we were forced to retal­iate, putting a further strain on our economy. Despite these shocks we remained steadfast on our chosen course and pursued our strategy.

 

We invited Pakistani experts from both outside and inside the country to advise us in critical areas. A former official of the World Bank headed a task force to recommend reforms in our tax system. This task force proposed ways to widen the tax be, document the economy, and bring eligible taxpayers into the tax net, partly by automating the tax collection process and reducing the discretionary authority of tax collectors.

 

Another economist formerly with the World Bank headed the Debt Management Committee, which formulated a strategy for external debt management. A retired top government official submitted a report on agricultural taxation. An Economic Advisory Board was formed comprising senior businessmen of the country, senior officials of the Finance Ministry, and the governor of the State Bank of Pakistan to make suggestions for removing the hurdles and obstacles facing the economy, through a policy of deregulation, liberalization, and privatization.

 

The governor of the State Bank spearheaded reforms in the financial and banking sector that not only have made our banking system healthy and efficient, but also for the first time have given middle- and lower-income groups access to banking credit. Interest rates, which were above 20 percent in the 1990, were brought down dramatically to an average level of 5 percent, thus lowering the cost of doing business. This action, along with consumer, agricultural, and small- and medium-enterprise (SME) financing, was critical in stimulating the economy. Industrial capacity, which was lying idle in almost all sectors, was revived by making credit available on easy terms. Tariff rates on industrial machinery and raw materials were lowered. Exchange rates were tied to the market rather than administered directly; whereas in the past the rupee was continually devalued, we were now able to provide a stable exchange rate to our exporters and importers and to foreign investors.

 

One of the tough decisions we made in the year 2000 was to approach the International Monetary Fund (IMF) for assistance. I was quite aware that IMF programs were highly resented by the people of Pakistan, but we wanted to use the IMF to achieve our strategic objectives. Unfortunately, the problem in the past had been that the rulers entered into agreements with the IMF to draw down their financing, with no intention of implementing any of the agreed-on reforms. Pakistan was known as a one-tranche country: it drew down the first tranche, which is automatic upon approval by the IMF, and then abandoned its agreed-on program, including the remaining payments, because the rulers did not have the confidence or popularity to make some politically unpopular decisions.

 

Why did our government succeed in completing the IMF program ahead of time and then in saying good-bye to the fund?

 

We had our own homegrown program of reforms that reflected our priorities and the realities of Pakistan. We developed our own strategy of implementation and then approached the IMF for assistance. Instead of taking the IMF’s assistance by accepting its conditions, which are often divorced from Pakistan’s reality, we sold the viability of our own strategy to the IMF and took assistance from it on that basis. The major advantage the country drew from having a credible program with the IMF was that our entire stock of external debt with bilateral creditors at the Paris Club (a consortium of developed European countries, North America, and Japan that extends loans to highly indebted countries under a collective arrangement) was restructured on highly favorable terms. The agreement granted a repayment period of thirty-eight years, with a fifteen-year grace period. In real terms this restructuring meant that our debt stock was reduced by at least 30 percent. Subsequent write-offs brought about a further reduction in the value of our external debt obligations. To my mind, it was simply absurd that we had to spend almost 66 percent of our revenues in servicing our debt. I told my economic managers that this situation was untenable and thus unacceptable and they had to take steps to reverse it: i.e., debt servicing should be reduced to the 22-25 percent range while public-sector investments should be tripled. The Pakistani people needed water reservoirs, lining of water-courses, roads and highways, ports and terminals, electricity and gas, schools, health clinics, and safe drinking water. Our growing urban centers such as Karachi and Lahore required major improvements. We could do none of this unless we diverted resources from debt servicing.

 

To the credit of my economic managers, we paid off all our most expensive loans; secured debt relief; obtained new, favorable loans; and paid off the remaining foreign currency deposits owed to foreign banks and financial institutions. All this gave us the fiscal space for public investment. Furthermore, our credit ratings have improved significantly in recent years. Pakistan is perhaps the only developing country that has graduated out of the IMF program and directly entered the international financial markets. The lesson that I draw for Pakistan and other countries from our relationship with the IMF is that we should not shift the blame for our own inadequacies onto the IMF and use it as a scapegoat. If you know what you are doing and have a coherent strategy of your own, the IMF and other international financial institutions can be deployed for the greater good of the country. When we are not ourselves sincere in our intentions and have no appetite to fulfill our obligations and responsibilities, it is no use blaming others.

 

In the area of economic governance our main endeavor was to level the playing field and close loopholes that favored a select, privileged few. The ad hoc system of regulations, which dominated our decision making in the 1990, was replaced by a transparent, uniform, across-the-board system. Accountability mechanisms were strengthened, and people found guilty of corruption were taken to task irrespective of their status and connections.

 

 This deterrent effect has reduced corruption at the higher levels of policy makers. I cannot claim that we have been able to get rid of corruption at the middle and lower levels, but we have made a good beginning.

 

During the first two or three years, when we were working hard on macroeconomic stabilization, there was a lot of criticism of our policies. I was quite blunt in my public pronouncements and always maintained that growth would take place only when macroeconomic stability was firmly established. After stabilization, when growth picked up as predicted, the critics shifted their stance: now they bellyached that unemployment and poverty had not been reduced. Now that both the unemployment rate and poverty have begun to decrease, there is a hue and cry that income inequalities are sharpening. It is true that high growth brings some bad side effects, such as inflation and temporary income inequalities, but these problems can be taken care of by the right policy instruments.

 

In one of my very early briefings, I was told that all our major economic woes flowed from our high deficits. My immediate question was: “What is our main source of income, and where do we mainly spend?” The answer was that our spending was largely on ourselves-apart from debt servicing, this spending involved the costs of government and defense along with subsidies to virtually all public-sector corporations that were hemorrhaging in the amount of almost $2 billion per year. Our earnings came mainly from taxes.

 

   The goal became clear. We had to reduce expenditures. I cut the budget, froze the defense budget, and appointed able people to lead all the government enterprises. Freezing the defense budget was the toughest decision. We did it in spite of India’s increasing its budget manifold, and in spite of the near war hysteria created in 2002 when India amassed its forces on the border for ten months. I had only one question to ask of the new directors of public-sector enterprises, whom I had selected carefully: “Can you turn this setup around to profit instead of loss?” If the answer was a confident “yes,” the man was selected. I must say most of them delivered. They turned their enterprises around. The steel mill, which had been running at a loss of billions of rupees virtually since its inception, became profitable in billions; the Pakistan National Shipping Corporation, which was losing billions, recovered and got into a position to buy two oil tankers with its own income. Also, the railways, the Water and Power Development Authority, Pakistan Television, and several smaller government concerns turned their red ink into black or at least checked their decline considerably.

 

   Once I had taken action to cut expenses, my next worry was to increase earnings. Generating more revenue was easier said than done. The people of Pakistan were not at all accustomed to paying taxes. We had a very narrow base bearing the heavy load of perpetually increasing taxes. I decided against levying additional taxes and instead moved in favor of broadening the tax base. This involved documenting our econ­omy. I called on teams of personnel from the army and the Central Board of Revenue. They started visiting all businesses and asking these businesses to fill out tax forms. That led to a serious confrontation with shopkeepers and traders, who came out on the streets and refused to comply. They even hid their goods in secret warehouses and stores, removing them from the shops to avoid evaluation by the visiting rev­enue teams. Law and order broke down in several places, leading to ugly scenes between traders and the law enforcement agencies.

 

    I came under tremendous pressure to back off, but I refused. I was convinced that without broadening the tax net we could not reduce the fiscal deficit or generate funds for our vastly ignored development needs. I bore the brunt of all the traders’ daily strikes for months. I toured several large cities, meeting with industrialists and traders and asking them to see reason. Ultimately we wore them down, partly by incorporating some of their suggestions for improving our new system. The drive was hugely successful, though I certainly cannot claim that we have caught all the defaulters in the tax net. We eased up when we realized that we could catch the rest of them in the tax net by using less visible or obvious methods through the Central Board of Revenue.

All in all, we brought the deficit down from around 8 percent (it had even crossed into double figures in the mid-1990s) to under 4 percent. Revenues increased from 302 billion rupees in 2000 to 700 billion rupees in 2006, an increase of over 130 percent in five years. This was no mean achievement compared with the eleven-year period from 1988 to 1999, when revenue increased by only 50 percent, from 200 bil­lion rupees to 302 billion rupees. at made me really proud of this achievement was the fact that the upsurge in revenue collection did not require any increase in the rates or incidence of taxes. In fact, we reduced tax rates on several items as well as the number of taxes.

 

   All these improvements gave us funds for projects in our Public Sec-tor Development Program (PSDP). Between 1988 and 1999, PSDP remained stagnant between 90 billion and 110 billion rupees. In 2006 the allocation stands at 300 billion rupees-an increase of 300 percent.

 

    In 1999 we had an alarming deficit of approximately $5 billion in our external balance of payments. This had forced us to borrow every year from international financial institutions. The point came when we had

to take short-term commercial loans at unaffordable interest rates because we could not do without them, as no institution offering bet-ter terms was prepared to lend to us any longer.

 

I saw that earnings came from exports of approximately $8 billion (they never crossed $9 billion in our history); remittances from expa­triate Pakistanis, which stood below a paltry $1 billion per annum; and foreign direct investment (FDI), which was negligibly low at $300 million. Our expenditure was mainly in approximately $10 billion of annual imports and debt servicing at a whopping $5 billion per annum. No wonder there was a persistent deficiency of $5 billion to $6 billion every year.

I launched a concerted drive to rectify this serious imbalance. Reduc­ing the import bill was not in our interest, because the expenditure was mainly on industrial needs and other essential, irreducible items. Major foreign exchange spending was on the import of petroleum and petro­leum products, the price of which is not in our hands and the demand for which is price-inelastic; and on tea and edible oil, both of which are staples for the poor and fairly inelastic too. The only expense to be reduced was debt servicing, and as mentioned earlier, we managed to achieve that reduction. Ironically, 9/11 came to our rescue. With Pakistan joining the coalition against terrorism, we earned the sympathy of the Paris Club. On the whole, the entire package resulted in the reduction of our annual debt servicing liability from $5 billion to $2 billion.

 

    All these changes helped set the stage for growth, but I knew we needed to encourage specific revenue. We took each source of earning separately and strategics on how to increase it. Exports could be increased only if we became more aggressive in marketing our products. Our exports were mainly focused on agriculture and textiles. There was no value addition in the former, and the latter, I came to know, accounts for only 6 to 8 percent of total world trade. Sixty-one percent of total world trade is in heavy industry, engineering, and the high-technology sectors. It was patently obvious that we needed to emphasize an export-led industrial sector. We redid our entire tariff structure to shift the focus from merely facilitating trade to encouraging indigenous industry. This I knew was a long-term measure, but I am proud to see our changed focus paying off. Our industrial growth was 18.2 percent in 2004 and 14.6 percent in 2005. In the short term we needed to diversify our goods and markets. We reinvigorated the Export Promotion Bureau (EPB) under its dynamic chairman, Tariq Ikram. High-quality ministers in commerce and industries working in tandem with the EPB did the trick of boosting our exports. In 2006 we have achieved a target of over $18 billion-an increase of around 125 percent in five years. That, by any standards, is no mean achievement.

Foreign direct investment (FDI) had almost dried up. In 1999 it stood at a pitiable $300 million. In 2001, when I was discussing Pa­kistan’s debt and investment problems with Premier Zhu Rongji of China, he offered a helpful perspective. Investors, he said, are like pigeons. When a government frightens them with poor decisions, they all fly off together. When the government improves its policies to attract them back, they return only one by one. He advised me to per-severe and they would return. Then he observed that Pakistan seemed to be suffering from what he called a “debt and investment dilemma.” On debt, he said, “Your dilemma is that you must not borrow, because it increases your debt servicing liability, but you must borrow if you wish to develop rapidly.” As to investment, he said, “Your dilemma is that you want to draw in FDI to increase your sagging foreign exchange reserves, but the investor looks at the health of your foreign exchange reserves before he invests.”

 

    I personally spearheaded the campaign to increase our exports and FDI. First we adopted the course of deregulation, liberalization, and privatization. We created strong regulatory mechanisms to ensure transparency and checks and to provide a level playing field for all investors in all sectors of the economy. We also introduced rules and regulations to create a very investor-friendly environment. Armed with these positive environmental changes, I met with business communities wherever I went around the world to increase trade, joint ventures, and investment in Pakistan. We achieved phenomenal success. In 2005 FDI crossed $1.5 billion, up 500 percent from 1999. We appointed an able, dynamic young man as investment minister, and I personally started chairing joint meetings of investors and government stake-holders to remove bureaucratic obstacles across the table. Our few hotels had been nearly empty during the “dreadful decade of democracy” Now occupancy rates are 100 percent, and this situation has attracted many famous international hoteliers to build more four and five-star hotels. There is also a simultaneous rush of investors in other booming (and blooming) sectors of our economy. I know our policies are bearing fruit, and investment in 2006 should touch $3 billion-ten times more than in 1999.

 

  The third area that needed to be put right was remittances from expatriate Pakistanis. When we compared our performance with other countries that have large expatriate populations, we realized that our level of remittances, which was around $1 billion, was appallingly low. The main reason for this, I found, was the efficiency of the hawala or hundi system: the informal, underground system of transferring money from expatriates to their relatives in Pakistan. While the informal system took only one day to deliver money, even to remote villages, our banks would take no less than seven days and were not even easily accessible. This lazy, careless bureaucratic attitude was inevitable because our banks were nationalized. We pushed the banks to reform, to ensure access to Pakistanis abroad and to transfer their money faster. We got the post office, which had far greater access to the people, to integrate itself in the banking system to improve services. In addition to all these corrective actions, 9/11 resulted in a remittance boon. The international law enforcement community focused on the financial underworld and started tightening the screws. The informal hawala operators were hounded. As a result of fast, improved banking services and my personal interventions, motivating expatriate Pakistanis wherever I went to reinstill confidence in them, expatriates started using banks for their remittances. Perhaps the most important factor, at least psychologically, was the continuing stability of the rupee, minimizing the difference between the official exchange rate and the unofficial rate. It was no longer worthwhile to use the risky informal system, especially now that the hassles at banks had been reduced considerably. Our remittances soared to over $4 billion in 2005-up 400 percent from 1999.

 

Our efforts to address the external balance-of-payments deficit resulted in a surplus of $2 billion in 2004.

Because we were highly successful in reducing the fiscal deficit and converting the current account deficit into a surplus, our economy started showing a very healthy recovery and even went into overdrive.

 

All macroeconomic indicators became positive.

History judges leaders by results. Let my results do the talking, through a look at what I inherited in 1999 and what we achieved by 2005.

In 1999, we were on the verge of default. The dreaded words “failed state” were on everyone’s lips. That is a distant memory now. The economy is on an upsurge.

Our gross domestic product (GDP) has risen from $65 billion to $125 billion-almost double in five years-and we now are in a different league altogether. International financial institutions look on us very differently and with respect.

 

The growth in GDP rose from 3.1 percent to a healthy 8.4 percent in 2005. We will achieve 7 percent in 2006 in spite of the negative effect of rising oil prices and the reconstruction effort following the earthquake.

 

Our overall foreign debt has been reduced from $39 billion to $36 billion. With such a reduction in debt and such a rise in GDP, the critical debt-to-GDP ratio fell from an unhealthy 101 percent to a much healthier 59 percent. A fiscal responsibility law has been passed, making it illegal for future governments to become indebted beyond 60 percent of GDP Per capita income has risen from $460 to $800. We are now in the middle-income category of countries-up from the low-income category.

 

Foreign exchange reserves have risen from a paltry $300 million (equal to two weeks of imports) to $12.5 billion (equal to ten months of imports). Exports are hitting $17 billion for 2006, whereas they were only $7.8 billion in 1999. Our imports have increased phenomenally. Our import bill is still more than our export earnings, but I am happy to say that the rise in imports has been healthy and positive, because apart from the near-doubling of our demand for oil, most of the rest of our import expenditure is on capital goods. We are bringing in machinery for building new factories and infrastructure and for expanding and modernizing existing facilities. This, I believe, is short-term deficit for long-term sur­plus, because most of the new factories will produce goods either for export or as substitutes for goods that we are importing. Such invest­ment creates many job opportunities as well. I know that in some industries middle management and certain kinds of skilled workers are already hard to come by. We are prospecting for oil and gas on a very large scale, and increasing our hydroelectricity generation with the building of five big dams, so our bill for imported oil will come down. The fact that we are converting our power generation plants from imported furnace oil to indigenous natural gas is beginning to make a difference as well. And when gas and oil pipelines, possibly from Iran, Qatar, or Turkmenistan, go through Pakistan to China and-we hope-India, we will earn transit fees. Further, not only can we use some of the oil and gas being transported in these pipelines ourselves, we can use the pipelines to export our own oil and gas when we have a surplus.

 

     Revenue collection has increased from $5.1 billion to $11.7 billion. This phenomenal increase of 130 percent is not from an increase in the number or rates of taxes. Rather, it is due to a reduction in the number and rates of taxes, broadening of the tax base, rationalization of the tax regime, documentation of the economy, and introduction of a self-assessment scheme that has reduced the interface between the tax-payer and tax collector, thus decreasing opportunities for corruption. All these factors have contributed to the huge increase in revenue.

 

   Our external debt and liabilities were a disastrous 347 percent of our total foreign exchange earnings. This figure has now been brought down to 137 percent. We are a far cry from 1999, when Pakistan com­pared poorly even against the “highly indebted poor countries” (HIPCs), whose ratio of debt is over 250 percent of foreign exchange earnings. It would have been a sorry day for our ego had we, a nuclear and missile state, been put in the HIPC category.

 

Remittances jumped 400 percent, from $1 billion to over $4 billion. The strong position of our foreign exchange reserves stabilized the eroding rupee. Under my watch, the exchange rate has hovered around sixty rupees to one U.S. dollar over the last four years.

 

The 100 Index of the Karachi stock exchange, which remained bearish at under 1,000 points, has become constantly bullish, rising to around 11,500 points in 2006. Some say this is the best-performing stock exchange in the world.

 

Pakistan has also joined the international capital markets for the first time. We first offered euro bonds in Europe and Asia, then launched Islamic bonds in the Gulf and the Middle East, and finally offered dollar bonds in the United States and Europe. All these were oversubscribed by renowned private investment houses. In fact, our dollar bonds drew loans of hundreds of million dollars for long-term duration: ten to thirty years. The very fact that private ventures are prepared to extend loans to Pakistan for such long terms at interests rates of merely 2 percent above U.S. government rates shows the confidence of the international financial community in Pakistan’s rising economy.

 

    Our credit rating in Moody’s and Standard and Poor’s (S&P) had hit rock bottom in 1999. It has now moved up to B+ with Moody’s and BB with S&P The downside of the sudden upsurge in the economy was a rise in prices. The income of the salaried class and the earnings of others have improved, resulting in increased purchasing power and thus increasing the demand-supply gap. This has caused an upward trend in inflation, which had neared almost 10 percent but has now been brought down to around 7 percent. The sharp rise in international oil prices has played its part as well. This has been a cause of considerable worry for the government and for me personally because at the end of the day the masses form opinions about the government based more on price rises than on macroeconomic gains. I remain conscious of this and am sensitive to the dire need to check inflation.

 

No efforts to revive the economy will be complete unless the macro-economic gains are transferred to the masses as improved living standards. The best way to improve people’s living conditions is to enhance their earnings by providing them with gainful employment, opening up avenues for self-employment, scaling up investment in human capital, and maximizing the impact of existing public spending on education and health. Central to achieving this objective is the promotion of stronger economic growth.

 

Ending poverty is an imperative, not a choice. Alleviation of poverty demands understanding clearly where poverty actually resides and then deciding how each area is to be addressed. Pakistan is an agrarian society, with over 65 percent of the population living in rural areas. This majority depends on basic agriculture and animal husbandry for sustenance and bears the brunt of poverty. In the remaining 35 percent of the people-the urban population-poverty can be subdivided into the educated unemployed and the uneducated unemployed. Both categories needed help and rectification.

 

Logically, the main effort for rural uplift had to go to the agricultural sector. The major constraint in Pakistan’s agriculture has been the availability, or unavailability, of irrigation. In this connection, my government launched over 300 billion rupees’ worth of water-related projects, most of which are likely to be completed during the next two to three years. These projects include the construction of various canals and dams, the lining of watercourses with bricks to stop leakage and spillage, and the upgrading of the irrigation and drainage systems. After the completion of these projects, 2.88 million acres of new land will be available for cultivation, allowing a quantum leap in agricultural growth, increasing the incomes of farmers, providing more jobs for the rural workforce, and reducing poverty in rural areas.

We cannot be satisfied with just bringing additional areas under cultivation, however. We also have to conserve water and ensure its opti­mum utilization. This we are doing by launching an extensive laser leveling program for all agricultural land (to prevent waste of water by finely calibrating the level of land) and encouraging modern drip irrigation (to save water). The brick lining of our watercourses, costing $1 billion, will be a major contributor to water conservation. We have also concentrated on yield intensification to increase the per-acre out-put of crops and thus multiply farmers’ earnings. I introduced a farmers’ welfare package to encourage increased production. By ensuring that farmers would have easy access to banks, we have increased agricultural loans by 500 percent; we have also introduced an ingenious easy-to-return three-year revolving-credit system for them. This has saved farmers from the cruel clutches of the middleman to whom he once had to sell his crops very cheaply in order to repay his loan on time.

 

    All these measures have greatly increased agricultural output. We have had bumper cotton and wheat crops, breaking all previous records. But this still did not give me the satisfaction of having done enough for the poorest segment of our society. We evolved a long-term plan as well. Pakistan happens to be the world’s fifth largest producer of milk, but we produce hardly any other dairy goods. We also have some of the best fruit in the world, and high-quality vegetables, but we are not adding value to them for export. I have made a deliberate decision to launch ago-based industries in the rural areas. We have initiated a “white rev­olution” by launching a special milk collection and chiller storage sys­tem. This will encourage a modern dairy industry to spring up, producing cheese, yogurt, butter, and milk powder for local consumption and export. We are also encouraging food and fruit processing to add value to our exports and contribute toward job creation for the rural workforce.

 

I am quite satisfied with our efforts for rural uplift. But addressing the issue of educated unemployed youth in the country in general and the urban areas in particular has always remained high in my thoughts. Information technology and the telecommunication industries are two of our major drivers of economic growth because of their enormous potential for creating jobs in urban areas. This sector has witnessed unprecedented growth during the last four and a half years and has emerged as a major source of foreign investment, thanks to the development efforts and reforms that we have introduced.

 

   In 1999, only thirty-nine cities in Pakistan were connected to the Internet. By 2006, 2,000 cities and towns were connected to it. In 1999, fiber-optic connectivity was limited to only about forty towns; today 1,000 towns have it. Bandwidth costs for the transmission of two megabytes per second have been reduced from $87,000 to $1,400. Pakistan’s telecom industry has been a major success story. In only three years, from 2003 to 2006, teledensity which is the number of telephones as a percentage of the population, has increased from a meager 2.9 percent to 16 percent; cell phones have increased from 600,000

to over 30 million; and wireless local loop is taking root in the rural areas.

Information technology (IT) and telecommunications are bridging the digital divide not only across the globe but within the country as well. They are playing an important role in Pakistan’s socioeconomic development. The extraordinary growth in the IT and telecom sectors has created enormous employment opportunities, directly and indirectly, for educated youth at call centers, in telecom engineering, as telecom salespersons, in customer service, in finance, in accounting, and so forth. This is one of the fastest-growing sectors of the economy, and its pace is likely to accelerate even more in the years to come.

 

Last but not least come our efforts to create jobs and alleviate poverty among the urban uneducated unemployed. We thought that industry, together with building and construction, would generate the maxi-mum number of jobs. Building and construction are particularly labor-intensive and therefore ideally suited to the uneducated unemployed. We took special measures to encourage this industry. Our actions and strategy paid dividends. Today there is a boom in both these sectors, and the demand for labor is so high that workers’ incomes have automatically shot up. As far as labor and other construction-related personnel like draftsmen are concerned, it is a seller’s market.

 

While working toward improving the country’s macroeconomic indicators and initiating wide-ranging structural reforms, my government was never oblivious to the plight of the deserving segments of society. We continued to pursue targeted intervention to address the problems of poverty and to generate income and employment through our public works program and our food support program, by providing microcredit, by distributing zakat (charity) and so on. Strong macro-economic gains allowed us to raise development spending annually from less than 100 billion rupees to 300 billion rupees in just six years. These resources are being utilized to create jobs, improve education and health services, and strengthen the country’s physical infrastructure. As a result, for the first time in our history, poverty and unemployment are showing a downward turn.

Written by

Pervez Musharraf

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