Failed Economic Take-Offs and Terrorism Conceptualizing a Proper Role for U.S. Assistance to Pakistan; Strategic Insights: v.2, issue 2 (February 2003)

Abstract

During the 1990s Pakistan's economy suffered on two accounts. One, lack of vision by the civilian ruling elites to make efficient use of public financial resources to boost economic growth, contain poverty, and develop human resources. Two, the inability of these governments (B. Bhutto and N. Sharif) to check unbridled corruption and cronyism. This failure resulted in the political use of public resources, the bending of rules and regulations to benefit a selected few and the erosion of any institutional accountability. Four key economic breakdowns evolved out of this environment: (1) high fiscal deficits; (2) an unsustainable public debt (domestic and foreign); (3) a sharp deterioration in the distribution of income; and (4) a disturbing rise in the level of poverty. Under the Musharraf Administration, considerable progress was made in correcting the first and second problems, but possibly at the expense of a further sizeable increase in the numbers of people below the poverty line. In part, economic performance under Musharraf stems from the emphasis placed over the last three years on macroeconomic stabilization as a key to fighting poverty. The strategy hinges on the premise that stability will result in higher rates of investment and eventually the restoration of rates of growth of over 6% (Malik 2003) per annum achieved during the 1960s, and through most of the 1980s. In turn high growth will pull large segments of the population up over the poverty line. The hope is that in the near future sustained rates of growth of over 6% will again be the norm. The question that immediately arises is whether this is a realistic goal for the economy.