Pakistan - An Economic Turnaround

             I was quite intrigued by a recent conversation with an old college friend who has returned to Lahore after finishing his education in Canada. As we were catching up on the latest developments in our personal lives, I inquired about his job in Lahore and a new name emerged from his response: Al-Warid Telecom, the latest player in Pakistan's bustling telecommunication sector. Hearing about other mutual friends also working in the telecom sector raised my curiosity even higher. Is Pakistan the “failed state” that some are calling it these days, or is the reality different? Here is what I learned.
The emergence of a vibrant Telecommunication and Information Technology sector in Pakistan is buoyant of the promise that the country's economy is exhibiting in the face of even stiffer global competition. The numbers speak for themselves. Pakistan registered an economic growth rate of 8.4% last year, second only to China and highest in over two decades of the country's history. With a steady increase in population of 1.9%, the per capita income also rose by 5.9% during last year. With the impact of high oil prices and 8th October Earthquake, the economy is still expected to keep its momentum and grow at a steady rate of 6.5% during the current year. These positive numbers are quite a contrast from the country's economic performance in the 90s. During that period in Pakistan's history, international opinions had declared Pakistan an economically failed state with a non-existent GDP growth and skyrocketing foreign debt of $ 38 billions. Such were the times that 64% of country's revenues were consumed by debt servicing of foreign and domestic debts - creating a legacy of public debt trap. With only one third of revenues available for defense, administration, social sector and development, it was humanly impossible to make any notable contributions towards infrastructure or industrial development.
Many critics attempt to draw a relationship between Pakistan's impressive economic turn-around with the U.S. aid Pakistan received for its role as "United States' most crucial non-NATO ally" in the aftermath of 9/11 Terrorist attacks on World Trade Center. However, this view is myopic in terms of its failure to recognize and identify the policies and economic measures the government undertook before and after 9/11. A substantive amount of aid flowed into Pakistan, $3 billion dollars to be precise but spread out over a period of 5 years and subjected to annual budget approvals of U.S. Congress. However, if there is a single reason that could be attributed to Pakistan's economic resurgence, it would undoubtedly be the presence of Shaukat Aziz, current Prime Minister of Pakistan and a former Executive Vice President of Citibank. We should keep in our minds that this is not the first time Shaukat Aziz has turned around a bleak financial situation. Previously, he was instrumental in attracting Saudi Prince Al-Waleed Bin Talal's $600 million investment into Citibank at a time when Citibank was reeling under tens of billions of bad loans in Latin America and its stock price had dropped to under $10 a share.
In the shape of Pakistan, Shaukat Aziz has had to carry out a similar task with an added responsibility of 140 million stakeholders’ future that was tied with the development of Pakistan as a viable and sustainable economy. On his part, General Pervaiz Musharraf did not meddle into any economic affairs and gave Shaukat Aziz a complete free hand in order to accomplish the seemingly impossible task of Pakistan's economic makeover. First as the Finance Minister and later as the Prime Minsiter, Shaukat Aziz induced an atmosphere of deregulation and wise economic policies that attracted local entrepreneurship and foreign investment. As a result, Pakistan's Foreign reserves increased from less than $1 billion in 1999 to $12.5 billion currently. With positive increases in foreign reserves and a stabilized balance-of-payments issue, the government improved its credit rating and managed to reorganize its debt so it could be brought down to $ 34.5 billion. Shaukat Aziz finally brought an end to the legacy of "borrowing for growing" and decisively aimed to take Pakistan out of the debt trap that had been the main cause of the economic crash witnessed by many Latin American and East Asian economies.
The government's more stringent macroeconomic policies and seasoned structural reforms have resulted in a stronger external position due to a lower public debt burden and renewed access to international capital markets. Targeting key services sectors, Pakistan has witnessed a boom in telecommunications, media and information technology while industrial and manufacturing growth created new records. As the budget deficit dropped from 8% to 4% and tax revenues went up by 20%, the government institutionalized a bold privatization policy that has attracted foreign investors from all over the world. A 26% stake in country's telecom giant, PTCL, netted $2.6 billion for the government while two cellular-phone licenses grossed around $600 million last year. This year the government is aiming to attract $3 billion in foreign direct investment, highest ever for the 58 year old country.