"Unless the trend is reversed the pool of poverty will be increasing by 6-7 million people a year." - File Photo

ISLAMABAD: With the national economy at its lowest ever point, Pakistan is adding 6-7 million people a year to its pool of poverty which currently stands at about 60 million, contributing to social and political instability in urban areas.

This has been stated in a report by a government-sponsored task force on private sector development jointly headed by senior economist Shahid Javed Burki and leading industrialist and former federal minister Abdul Razak Dawood.

The task force, appointed by President Asif Ali Zardari, was working with the planning commission. It has submitted its report to the government.

“In a history of exceptional turbulence that has lasted since Pakistan gained independence more than six decades ago, the current economic situation is at the lowest point ever reached,” the report said, adding the country today was the poorest performing economy in South Asia and its growth in gross national income (GNI) stood at one-third that of India and half that of Bangladesh.

“Unless the trend is reversed the pool of poverty will be increasing by 6-7 million people a year, from the current estimated size of 60 million, with most of the increase taking place in urban areas contributing to social and political instability,” Mr Burki says in the report.

Another member of the task force, Dr Pervez Hassan, has concluded that Pakistan has over time steadily lost ground in manufactured exports – the engine of growth in international trade – to exporters of all other major developing country.

“Its share in this group was 1.4 per cent in 1980 but had fallen to 0.4 per cent by 2008. Even excluding China, Pakistan's share had dropped more than 50 per cent to 0.7 per cent over 1980-2008.”

Mr Hassan has identified three factors for this relative decline: First, Pakistan remains heavily dependent on relatively slow growing textile exports and has also made less headway in faster expanding garment exports. Second, since 2005 Pakistan has lost market share in both textiles and clothing not only to China but also to emerging important exporters like India, Turkey and Vietnam. Third, its record in fast expanding other manufactured exports, whether sports goods, surgical equipment, auto parts and jewelry, has been dismal and its presence in international market is negligible.

He has argued that the government should reverse this declining trend by setting ambitious but realistic goals with an export-driven development strategy that should allow better participation and competitiveness in world markets.

Among several recommendations, Dr Hassan has advocated a 10 per cent nominal devaluation of currency during the current year “just to keep the exchange rate from further appreciation”. Real exchange rate appreciated 8.3 per cent in fiscal year 2010 as against real depreciation of 0.3 per cent in fiscal 2009.

He has also recommended joint public and private sector efforts to promote foreign investments in textiles, clothing and other promising sectors from Korea, Hong Kong, Malaysia and Taiwan which are losing ground in labour intensive industries due to high and rising wage.

“The focus of these efforts should be to upgrade skills and technology and to make use of established export channels.”The task force report appreciates that 90 per cent of Pakistan's economy is not controlled by the private sector but the culture of government subsidies has created a large budgetary burden. Also the private sector is dominated by very small enterprises because of existing regulatory system.

The report calls for rationalisation and expansion of the fiscal base to increase tax-to-GDP ratio from the current 9 per cent to 17 per cent over a period of five years. It has also recommended an institutional and analytical framework to guide the process of fiscal decentralisation.