After assuming responsibility as Finance Minister and subsequently as Prime Minister, Shaukat Aziz, did not tire of informing the nation that Pakistan had broken the IMF begging bowl and the State Treasury was overflowing with funds. In fact, he went on to state that Pakistan would soon become a donor country. According to him, the financial commitments and contribution made for Afghanistan’s economic development were symbolic. Other countries could also expect Pakistan’s assistance in the development of their economies. In order to justify his claims, national statistics were fudged. GDP figures for at least two preceding years were revised in 2005-06. This was unprecedented. The fallout effects were ignored. The first casualty was the loss of credibility of the data presented in the Economic Survey. Thanks to conniving bureaucrats serving in national institutions, poverty measurement instruments used in earlier estimations were discarded. Despite murmurs of dissent, new poverty measurement tools were used to produce results that could support the regime’s contention of a rising Pakistan. According to these ‘new’ estimates, the percentage of population living below the poverty line had shown an impressive decline. This reduction in poverty was attributed to the sound economic policies of the economic managers. It was a different matter altogether that they had made the country a laughing stock of donors as well as the international financial institutions. Pakistan could not count on the acceptance of any of its statistical data scrupulously prepared, in accordance with international norms, due to the suspicion that it may have been fudged.

The trumpeted economic growth was not driven by higher investment in new industrial units and for balancing and modernisation of existing plants and their production capacities. Very little investment was made in replacing obsolete technology to keep Pakistan competitive in the international market. There was no increase in the national savings rate, which is a key indicator for a shift in the growth trajectory. The savings rate also determines the nature of the economic growth process itself reducing dependence of the economy on external assistance.

Savings provide the most important economic link between the past, present and future of a country. The stock of savings made by the public, private and corporate sectors help in determining the level of gross investment and the country’s growth rate.

It follows that a low rate of savings if maintained over a longer period of time, entraps an economy in a vicious circle of low investment, low growth, low productivity and low real per capita income. The national savings rates of India and Pakistan have shown a wide differential, both historically and in recent financial years. India's current national savings rate is about 24 percent of GDP, significantly higher than the saving rate of Pakistan that is estimated at 13 percent.

China was bracketed with some of the world’s poorest countries some 30 years ago. It was estimated that 80 percent of the population had income of less than $1 per day and only a third of all adults were able to read or write. Yet, it did not feel the need to rely on IMF’s rescue packages. Although it welcomed foreign investment, it did not knock the doors of international financial institutions for assistance. China relied on domestic savings for investment. Within the last 30 years, it has become one of the fastest growing countries in the world with real per capita growth close to 9 percent per annum during the 80s and 90s. This meant that China’s per capita income was doubling every 10 years, faster than almost any country in the world. It took the UK almost a century, USA 50 years and Korea 25 years to double their per capita incomes.

Pakistan, however, refuses to learn either from its own past or China’s performance. It does not require a Nobel Laureate in Economics to educate our economic managers that stagnant savings rate is explained by a negative contribution of household savings in physical assets, increase in deficit financing by the government and non-consequential savings by the corporate sector as a percentage of GDP. This latter phenomenon can be attributed to loss in profitability, repatriation of profits by multinational companies and closure of businesses due to their inability to compete in the external markets. The previous government was maintaining low interest rates as a policy measure to encourage investment. Numerous tax concessions and implicit subsidies were allowed with the same objective. The desired outcome did not lead to an increase in corporate savings. Banks profited by the unprecedented differential in spread allowed by the State Bank under the government’s encouragement. These profits were disbursed as dividends and, in case of foreign banks, they were repatriated in foreign exchange.

Pakistan, thus, desperately requires resources for investment. These resources can come through higher rate of private savings. Now that the IMF has placed an embargo on the government’s borrowing from the State Bank, the Finance Ministry has to find resources from the non-banking sector to finance its deficits. A high rate of return on savings can play a major role in providing an impetus to savings, especially in view of the prevailing inflation and decline in the value of domestic currency. Other steps have to be taken in conjunction with the above. The government must learn to live within the given resources and lower the existing level of fiscal deficit. But this appears a difficult feat to achieve for President Zardari. It appears unlikely that he has the capacity to demonstrate simplicity and economy, even for symbolic purposes.

n    The writer is a member of the former Civil Service of Pakistan.

    Email:shakeelahmad1964@hotmail.com