Financial sector reforms were accelerated by granting autonomy and strengthening the Central Bank. The privatization of Habib Bank, United Bank, and Allied Bank - three large nationalized commercial banks of the country transformed the banking sector into an efficient, privately-owned and managed sector but regulated by a strong and vigilant Central Bank. Private sector credit grew at an average rate of 25 % annually. Profitability of the banking sector surged while net NPLs ratio declined to 2.3%. Interest rates touched as low as 4 to 5 percent. Agriculture credit disbursement by banks multiplied six-fold and most of the credit went to small farmers. More than 1.2 million borrowers received micro-finance loans without any collateral. Capital market capitalization rose eight times and 60 new IPOs were listed and 48 corporate debt bonds issued.
Trade policy reforms and liberalization helped the country in earning foreign exchange through non-debt creating flows ---higher exports, remittances and FDI. Exports of goods almost tripled from $ 7.8 billion to $ 21.2 billion being able to finance 80 percent of imports. Along with a six-fold increase in the workers’ remittances ($ 1billion to $ 6.5 billion) the current account balance turned surplus in three out of eight years and foreign exchange earnings almost tripled from $ 16.8 billion to $ 46.0 billion. Tariffs on imports were rationalized and brought down to average 7.6 percent. FDI inflows touched $ 5 billion in each of the last two years and were channelled mainly to telecom, banking sector and oil and gas sectors. Foreign exchange reserves rose from 991 million dollars to US $ 14 billion covering six months’ imports.
The Monetary policy was managed to kick-start the economy when it was trapped in low growth-low inflation equilibrium. Until FY 2005 inflation remained subdued but subsequently the inflation target slipped due to the uptrend in the global commodity prices as well as inefficiencies of wholesale and retail markets. The exchange rate remained stable throughout the period as excess net foreign savings were sterilized and reserves were augmented.
Deregulation of oil and gas, telecommunication, media and civil aviation sectors also brought about significant positive results. New gas fields operated by private sector companies added new capacity to meet the growing energy needs of the country. Telecommunication witnessed a boom since the private sector companies were allowed licenses to operate cellular phones. Telephone penetration rate reached 50 percent with 70 million subscribers.
The cornerstone of the governance agenda was the devolution plan which transferred powers, responsibilities and financial resources from the federal and provincial governments to local governments headed by elected representatives. A new Police Order replacing the 19th century law was passed to modernize the force. The National Accountability Bureau (NAB) was established under a new legal framework as the main anti-corruption agency.
Despite difficult initial conditions in 1999, Pakistan’s economic performance under Musharraf has been impressive in terms of income per capita, debt reduction, employment generation and poverty alleviation. As a result of reasonably high GDP growth rate of about 6.3 percent a year the per capita income in current dollar terms rose to about $ 1000. GDP growth (3.1 percent in 2001/02) recorded 7 percent in 2006/07. Investment rate grew to 23% of GDP, the highest recorded ever in Pakistan’s history. Headcount Poverty ratio fell from 34 percent to 15 percent. Unemployment rate fell also from 8.4 percent to 6.5 percent and about 11.8 million new jobs were created. Public Debt was brought down from 90 percent of GDP to 58 percent. Gross and net enrolment at primary level improved and health indicators such as children immunization, incidence of diarrhoea and infant mortality showed favourable changes.
There is a popular belief that Pakistan’s economy prospered during this period due to a huge surge in capital inflows arising from Pakistan’s support for US intervention in Afghanistan. Even if we assume the extreme case that all official transfers, debt relief and all foreign loans/ credits represent the “gift” of September 11 to Pakistan, this combined amount represents only 10% of total Foreign Exchange Earnings of the country in FY-06. It would not have been possible to take advantage of the benefits offered by Sept. 11 in absence of the reforms mentioned. Research by a British economist found that the statistical evidence failed to relate these capital inflows with savings and investment, expenditure, imports, domestic and external debt, corporate profitability and boost in public investment. He concluded that “the episode of economic growth between 2002/3 and 2008/9 was better explained by a stronger government able to mobilize domestic resources, ensure that they were utilized productively and create institutions that were able to overcome the conflicts associated with economic development”.
Khushbakht Shujaat
Ninety nine percent leaders demand respect, President Pervez Musharraf is among those 1% leaders who command respect.
His economic policies, foreign affairs policies and governance policies were aligned with this slogan "Pakistan First".
During his tenure of 2000-07, Pakistan positioned itself as one of the four fastest growing economies in the Asian region with its growth averaging 7% per year.
Relations with the U.S. were at their peak. Musharraf also made amends and improved relations with neighbouring India.
I recall how the infrastructure of my city Karachi drastically improved during President Musharraf’s tenure.
Some will remember him as a dictator simply because he is a military general but I will remember him as the leader who brought democracy back to Pakistan.
I will remember that during President Musharraf’s tenure there was unprecedented deregulation of the mass media, economic growth, and vibrant debate that had never occurred before him.