Meeting the economic challenge

Pakistan has been endowed with an extraordinarily important strategic location and great development potential. Pakistan occupies a strategic location at the crossroads of South Asia, Central Asia, China and the Middle East. It occupies a pivotal position due to its large population, huge market, enormous and diverse resources and a huge untapped potential for trade.
Pakistan has undergone a major demographic transition over the last 40 years. The increasing proportion of Pakistan's population that is of working age provides Pakistan with a potential demographic dividend, namely, the potential for increased economic growth as a result of increasing and productive participation of the population in the labour force. Pakistan also has one of the most extensive irrigation networks in the world.
The country's irrigation assets have underpinned food security in a country that ranks amongst the world's most arid and provide the basis for rapid potential growth in agricultural income and employment. Those involved with the country's planning and financial management must develop the strategy to exploit these resources.
Pakistan has made great strides in service delivery over the last three decades. It has however, not been able to translate an increasing working age population into a strong and sustained impetus for growth. This is causing frustration and social unrest in society. Job creation should therefore become a priority with national planners.
Social indicators for both health and education have remained low and have lagged seriously behind other countries in the region. The level of expenditure on education and health has been severely constrained by limited fiscal space and the weight of other spending priorities. Pakistan must not only invest in raising the literacy rate, but also find the resources for providing technical training and skills that are in demand in the job market both here and abroad. Acquisition of technology must be accorded priority.
We will then succeed in improving trade with our various partners. Finally, Pakistan's strategic location has also brought its own set of challenges in the form of overlapping religious and national identities, and sharply contrasting ideological orientations - factors which have contributed to generating conflicts that have deeply affected Pakistan and the expenditure priorities of the Government.
Very positive efforts have now been initiated by the Federal Government to improve the country's relatio9nship with its eastern and western neighbours. These efforts will yield dividends in the future for Pakistan's economic prosperity. There is optimism about the prospects for political stability and for increased accountability by the state for the scope and quality of public goods and services provided to citizens. One outgrowth of this political climate has been the recent major changes in the division of revenues between the federal and provincial governments. With these changes, more resources will now go to the provincial governments who hold the mandate for delivery of the most basic services.
Similarly, the role of the provincial governments in the delivery of social and economic services has been enhanced through the 18th Constitutional Amendment. Also, experience during the last two years suggests that an elected government with broad legitimacy can command the political support needed to take politically difficult policy measures (as in energy pricing and public expenditures) that improve the prospects for better economic and social outcomes. In many respects, therefore, recent political developments present a window of opportunity for reforms especially in service delivery and in some areas that require strong political legitimacy to pursue changes that adversely affect popular or vested interests.
The ambitious reform program of the government has brought about a significant reduction in the fiscal and current account deficits and restored foreign exchange reserves while GDP growth has started to pick up. Foreign remittances have grown thanks to the government's remittance drive. Increases in power tariffs totalling 80 percent since February 2008, along with an automatic pass-through of fuel prices have helped to address the fiscal deficit. Inflation has fallen from over 20 percent in 2008 to about 15 percent at present.
The government has more work to do in a difficult security environment to further reduce inflation and the fiscal deficit, in particular by eliminating large losses of public sector entities in the power, transport and manufacturing industries and by increasing public revenues through the introduction of tax on agricultural incomes, real estate and other sectors that have remained out of the tax net so far. Laxity in tax administration and corruption must be totally rooted out.
While the economy is stabilising, continued improvement in the macroeconomic situation remains a challenge. Global economic recovery has started, but remains fragile and slow. Global trade is projected to remain depressed and unemployment high for years in a large part of the world. The stiff increase in the price of crude oil in the past few months due to the crisis in the Middle East has forced the Government to rationalise prices in the domestic market causing difficulties for the people and forcing inflation to rise. Pakistan can expect little in the way of a substantial growth impetus from global markets. Pakistan's future economic prospects hinge on good economic policies and management.