during musharaf

8/7/2019 During Musharaf

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Pervaz Musharaf Regime Analysis

By Ahmed Ali Arbani, Szabist


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Apparently the economy of Pakistan boosted in Musharraf tenure but actually Musharraf rule

further aggravated the already compromised situation of the economy of Pakistan.

During Musharraf regime, the economy of Pakistan at that time which was during 2000-01 was

going into burst, but suddenly it went into boom (expansion) rather than going into recession.

Actually at that time Pakistans economy was not growing but rather it was an artificially createdphenomenon for improving our GDP for certain time.

During this phase there was increase in overall money supply and lending to public increased

with great pace. During that time commercial banks started lending to public without any strict

requirements. This caused the standard of living to improve.i.e. In year 2004 there was a rapid

increase in public borrowings. They started purchasing cars more than there requirements, during

that time the interest rates set by bank were very low and later in 2008 the interest rates were

increased to stop public borrowing

During this time period there was increase in total public debt, which increased from 3.8 trillionin year 2004 to 5.9 in 2008. An increase of 56% in four years. High and rising external debt

burden caused a serious constraint for development; a major hurdle to macroeconomic stability

of Pakistan and hence, due to this foreign investment was discouraged because it created a high

risk environment and exchange rate depreciation; and a discouragement for government to carry

out structural reforms in the various sectors of the economy. Facts suggest that external debt

slows growth only if it crosses the threshold level of 50 percent of GDP or in net present value

terms, 20-25 percent of GDP.

In year 2001 the total consumption expenditure was 3491,436 while in year 2005 it was

5,748,308, on the other hand Total Investment Expenditure was 715,525 in 2001 and 1,102,605in 2005. The percentage change in consumption expenditure for year 2001 to 2005 is 64% while

the change in investment expenditure is 54%. This means that the foreign investment did rise but

even greater was the change in consumption expenditure providing room for demand-pull

inflation to occur.

The vulnerability of the economy to external flows is revealed by the data on investments and the

sources for financing it. During the Musharraf period, the rate of investment has increased by a

third, from 17.2 per cent of GDP in 2001-02 to 23.0 per cent in 2006-07. However domestic

savings have declined from 17.8 to 16.1 per cent of GDP in the same period. This means that the

economy is even more dependent on foreign flows than was the case in the 1990s.

The aid taken by external sources has been in two forms one is project based aid while the other

is non-project aid. The project aid has declined, it year 2002-03 it was $705 million and year

2007-08 it was $432 million. There was decrease of around 39% in project aid. On the other

hand Non-Project Aid increased from 832 in year 2002-03 to 2032 in year 2007-08, an increase

of 144%. As there was decrease in project-aid this caused the miss-management of funds and

also the investment was not done at the rate as it should have been done.


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Private sector borrowing rose during 2004-2007. There was increase in investment during this

time and increase in GDP but it was not sustainable as investment was done in stock exchange

and trading but not in manufacturing. The recent political stability caused this type of investment

to fade due to which problems were caused for economy. I.e. we were almost on the stage of

being declared bankrupt in year 2008-2009

During Musharraf regime there was bulk of billions of rupees in revenue earned by the foreign-

owned cell phone companies were being remitted abroad because the government had imposed

no limit on such transfers. In real terms, the improvement in real GDP was not as high as the

government portrayed it to be.

According to the report by human development in South Asia Pakistans economy did improved

during 1999-2007 which was due to greater financial and trade integration. GDP improved due

to the support from foreign direct investment but still the savings and investment levels were

unsatisfactory.

Borrowing from within and outside the country is a normal part of economic activity.

Developing countries, like Pakistan, would need to borrow to finance their development;

however, they need to enhance their debt carrying capacity as well. In other words, the borrower

must continue to service its external debt obligations in an orderly and stable macroeconomic

framework. Furthermore, the borrowed resources must be utilized effectively and productively

so that it generates economic activity. Prudent debt management is therefore, essential for

preventing debt crisis.

During this phase Pakistans Economy could have done better if our economy would have been

more dependent on investment rather on consumption expenditure. Following are the fewrecommendations that can help our economy to improve and work effectively

during musharaf

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