ISLAMABAD (APP) - Federal Minister for Finance and Economic Affairs Shaukat Tarin said on Tuesday said that generating Pakistans own resources, promoting agriculture and export led competitive industrial sectors, low inflation, sustainable economic growth are the paramount factors for safeguarding the economic sovereignty of the country. He sated this while addressing the participants of the National Security Workshop-10 on the topic of Economy of Pakistan: Challenges and prospects here at National Defence University today. The Minister highlighted the steps taken by the present government for the economic stability of Pakistan and added that these efforts have helped the economy of the path of higher and sustainable economic growth and poverty reduction in the country. He said growth rate of the economy- lasting 4 years - between 2004 and 2007. During this period, the economy grew by an average of 7.3 percent each year, with most macroeconomic indicators depicting positive momentum. Foreign direct investment in the economy, privatisation receipts, foreign exchange reserves, and bank borrowing by the private sector - all rose to record highs. In addition, he said economic prosperity appeared to be wide spread. What was true for Pakistan was true for the global economy, he added. For several years prior to the start of the global financial crisis in 2007, the world was experiencing an unprecedented economic boom - one of the longest periods of economic expansion, and the most sustained and robust increases in per capita incomes the world has ever known. In addition, it was the most globally diversified and geographically widespread period of economic growth in history, with both developed and developing countries from all continents and regions participating. However, in the summer of 2007, this supposedly miracle global economy suddenly and dramatically plunged into the depths of the severest recession in living memory, skirting close to one of the greatest depressions in all of economic history. As you are aware, Pakistan experienced an episode of high growth rate of the economy - lasting 4 years - between 2004 and 2007. During this period, the economy grew by an average of 7.3 percent each year, with most macroeconomic indicators depicting positive momentum. Foreign direct investment in the economy, privatisation receipts, foreign exchange reserves, and bank borrowing by the private sector - all rose to record highs. In addition, economic prosperity appeared to be wide spread. What was true for Pakistan was true for the global economy. For several years prior to the start ob the global financial crisis in 2007, the world was experiencing an unprecedented economic boom - one of the longest periods of economic expansion, and the most sustained and robust increases in per capita incomes the world has ever known. In addition, it was the most globally diversified and geographically widespread period of economic growth in history, with both developed and developing countries from all continents and regions participating. However, he said in the summer of 2007, this supposedly miracle global economy suddenly and dramatically plunged into the depths of the severest recession in living memory, skirting close to one of the greatest depressions in all of economic history. The dramatic unraveling of the global economy, and Pakistans own economic difficulties since then, reveal the weak foundations on which both expansions were built. The root cause for the dramatic rise - and equally dramatic fall - of Pakistan and the world economy was the policy of easy credit promoting excessive consumption in the economy. As we have known all along, but seem to forget in the heady days of growth: debt-financed consumption beyond a certain point is ultimately unsustainable - whether by households, by individual firms, or by countries. If the debt is not used to expand the productive capacity of the economy, but used to finance current consumption, there will always be a problem at some stage, he remarked. Highlighting the Pakistans economic performance between 2001 and 2008, he said that Pakistans growth was driven largely by private consumption and not by investment. While private consumption rose from 74 percent of GDP to 79 percent of GDP, investment rose more modestly, he remarked. He said that the total public debt went up massively, from Rs 3.8 trillion in FY2004 to Rs 5.9 trillion in FY2008, an increase of 56 percent in four years. Out of this, the previous government printed currency to the tune of Rs 720 billion (i.e. borrowed from SBP) in two years, fuelling inflation in the economy, he remarked. Shaukat Tarin said that the fiscal deficit - representing the cumulative new borrowing the government has to undertake - rose to nearly 8 percent of GDP in 2007/08. In absolute terms, he said this was Rs 781 billion - the highest ever deficit run by Pakistan in its history. Borrowing by the private sector rose seven fold 2004 and 2007 - much of it channeled not into new manufacturing plants but into investment in the Karachi Stock Exchange or the property market in Dubai, he added. He said that on the external side, the current account deficit swung from a nominal surplus to a deficit of 8.5 percent of GDP. He added that imports rose 2.5 times during this period, while export growth was only 1.5 times. By 2008, Pakistans exports were financing only 47 percent of its import bill. While oil imports constituted a large part of the total import bill, imports of consumer goods - cars, mobile phones, durables, fashion accessories, and food items such as fresh vegetables and fruits, among a range of other non-essential goods, had risen enormously, accounting for a substantial part of the non-oil import bill, he remarked. In essence, Pakistans economic policies were providing jobs and stimulus to the economies of its trading partners - not to its own economy I am sure you will agree this was an unacceptable situation, he remarked. What was true for explaining the remarkable expansion in both the global as well as Pakistans economy, was also true for explaining the downward spiral in both cases. Not for the first time Pakistan underwent a boom-bust growth cycle. Policymakers repeated the same economic growth-model - and hence, the same mistakes - of the past, by trying to grow the economy on external assistance and borrowed money, he remarked. The Minister said that If we map what economists call the incentives framework in the economy we find the following features: No capital gains tax on equity investments (which led to foregone tax revenue for the government of Rs 120 billion in 2007 alone); No capital gains tax on real estate transactions, a heavy promotion of consumer credit and a liberal import regime. Under this incentives framework, Pakistans domestic manufacturing base was being replaced by imports, and new investment was being diverted to trading rather than manufacturing. Unfortunately, while there was political and economic stability for several years between 2002 and 2008 - an ideal environment for serious, deep-rooted structural reform - instead there was an absence of meaningful reforms in critical areas of the economy. For example: No restructuring of Public Sector Enterprises (PSEs) took place. As a result these entities continue to place a heavy burden on consumers and taxpayers. The size of the Public Sector Development Program (PSDP) grew manifold, without a commensurate increase in either tax revenues to finance the increase, or any improvement in the absorptive capacity of different tiers of government to identify, implement and monitor projects. As a result, he said not only did government borrowing shoot up, but it also created a huge backlog of unfinished projects (called throw-forward) of several trillion Rupees - a sign of serious fiscal mismanagement The stock of both external as well as domestic debt rose sharply, he remarked. The growth episode of 2003-2007, he said did manage to reduce headcount poverty, but as has been demonstrated since the last number was released for 2007/08, the gains were transient and have not been sustained. In addition, with no changes to the institutional framework, any poverty-reduction that took place was incidental to the growth process, and not central to it, That is the key point that I will re-emphasaze. Under the growth model that has been used in Pakistan, poverty outcomes have been driven more by chance than by policy. So this is the major paradigm change we are working to achieve.