Economic prospects look up in post-Musharraf period

Pakistan's economic indicators yesterday offered signs of further progress as investors breathed a sigh of relief a day after the resignation of President Pervez Musharraf.

The exchange rate of the rupee versus the dollar and trends on the Karachi stock exchange (KSE) both showed signs of improvement as the country looked towards the ruling coalition government to take the lead.

While Musharraf said he was stepping down in an address to the nation, he chose the opportunity of his last speech on Monday to defend the record of economic management of his government. In the coming days, it is possible that Musharraf's promise of putting out a document on his management of the economy will come true.

The rupee on Friday hit an all time low of 76.90 to a dollar, which by yesterday showed some signs of recovery. The hope in the financial markets must indeed be that Musharraf's resignation removes some of the prevailing political uncertainty and should allow the government to focus on the economic challenges, including unstable public finances, lacklustre growth, surging inflation and widening trade and current-account deficits, that remain.

In the 18 months since the political turmoil began, the Pakistani economy has suffered due to factors such as a collapse in foreign direct investment, a number of equity investors leaving the country and a fast growing import bill caused by a significant rise in international oil prices as well as more costly food imports.

As a result, growth during the last financial year (July-June) fell to 5.8 per cent from a respectable 7.2 per cent the year before. For the public, the one outcry that overcomes all others is the growing frustration over inflation edging up rapidly and setting new historical records.

Best hope

For now, the best hope tied to the emerging future is indeed that members of the government will get down to quickly finding a credible candidate to be elected as the new head of state to replace Musharraf. Such a development could help to settle down the political situation with deep consequences for the economy.

At the same time, however, there must be recognition that in the post-Musharraf scenario, the government would have to deal with policy challenges on fronts ranging from the security environment to economic issues. While Musharraf claims credit for overseeing an economic turnaround during his tenure, the reality is indeed that key areas were practically ignored.

Two oft-quoted examples must be cited to highlight this point. On the one hand, repeated criticism by independent analysts drawing attention towards the plight of at least one-third of the population living below the poverty line was often ignored by leaders in the previous government. The downside of this trend was indeed the extent to which poverty could eat into the prospects for economic growth. There are few countries around the world where economic growth has remained sustainable without the assurance of the fruits of success flowing down the line.

On the other hand, Musharraf has left behind an unimpressive legacy on radically transforming the tax collection system to the point where more Pakistanis were forced to pay taxes. The reality is that less than 1.5 per cent of population pays income tax while Pakistan's tax-to- GDP ratio is the lowest by comparison to its peers in south Asia.

It is therefore not surprising that the fruits of success under the previous government largely went to make the rich richer while those who were dispossessed suffered.

- The writer is a journalist based in Pakistan.