State Bank’s Annual Report

THE Annual Report released by the State Bank of Pakistan on 29th October contains a good exposition of Pakistan’s economy during 2006-07, pinpoints latest economic challenges confronting the country and offers advice to overcome weaknesses in a number of key areas. It is also educative in the sense that it has discussed policy trade-offs at appropriate places and given the reasons for preferring certain strategies in the larger interest of the economy. As for the achievements during 2006-07, the State Bank seems to be highly pleased with the rate of growth in the country. At 7.0 percent, the real GDP growth was one of the fastest in Asia during FY07, surpassed only by China and India. A very healthy aspect of the growth of the economy was that this was the third consecutive year in which growth was supported by acceleration in real investment. According to the Report, “sound macro-economic policies have successfully transformed the initial consumption-led growth impetus of a few years back to a greater role for sustainable investment-led growth.
With the investment to GDP ratio at a record 23 percent, complemented with a surge in domestic private investment and record FDI flows, the economy looks well-poised to continue on a high growth trajectory in coming years”. The State Bank also appears to support the contention of the government that the current spell of high, sustained growth is having a desirable impact on alleviating poverty in the country. However, as opposed to the government, it has not relied on some kind of household survey to prove its point but merely stated that the country witnessed a marked reduction in poverty level during FY79-FY83 when the growth rates were quite high and the relationship between growth and poverty level could also be similar this time. Gains were not only confined to growth and investment but were also recorded in other areas of the economy. “More specifically, and in proportion to GDP, national savings rose, the external debt burden declined, and total revenue increased while the budget deficit stayed at last year’s level of 4.3 percent of GDP”. The State Bank stresses in no uncertain terms that key macroeconomic challenges remain to be fully addressed yet. “The current account deficit widened further in FY07, the tax to GDP ratio is still very low, and inflation remained stubbornly high, showing only a sluggish decline in FY07”. If the economy is to continue growing at rates above historical norms, policies and measures have to be implemented to stabilise emerging macroeconomic imbalances. Justifying continued tight monetary policy, the Report states that such a stance addresses inflationary expectations and prevents the seepage of pressures from rising food prices into the broader economy. Although monetary policy was effective in containing demand-pull inflationary pressures, the impact of monetary tightening was muted by the unanticipated strength of food inflation, an expansionary fiscal policy and the need for concessional financing for strategic sectors of the economy. The growing current account deficit, led primarily by a sharp slowdown in export growth, poses another great risk to the economy. In the immediate response to the sluggish growth in exports, the State Bank increased the subsidy for export lending in July, 2006 but concessional lending is no answer to this challenge.

Sense of proportion

SOME relatives of the 191 dead from the Madrid train bombing along with some of the almost 2,000 injured are angry at what they consider the lenient sentences for some of the 27 convicted of the crime. They are protesting also that seven of those charged, including an alleged Egyptian mastermind, were found not guilty. In such an emotionally charged situation, their reaction is understandable. Nevertheless, this was a fair and exhaustive four-month trial in which it seems very likely that justice was done. Seven other terrorists blew themselves up three weeks after the attacks when their Madrid apartment was stormed by the security forces. A policeman also died.
What is notable is that though all Spaniard feel disgust and dismay at the March 2004 massacre, the general public reaction to the crime and the subsequent trial has been admirably measured. Spain has not fallen victim to the same kind of paranoia which many Muslims in Britain and the United States are concerned has gripped ordinary people there. Maybe the Spanish are actually more phlegmatic than the British. There is also the fact that for years the Spaniards have suffered from terror attacks by the Basque separatist group ETA. Indeed, immediately after the Madrid bombings the conservative Popular Party government actually blamed ETA. (It is ironic that one recent poll showed that as many as 30 percent of Spaniards still suspect ETA may have had something to do with the train bombings). That error contributed to its defeat by the Socialists in the general election that same month. There was also widespread dissatisfaction with the then Prime Minister Jose Maria Aznar’s decision to back America’s Iraq invasion with 1,300 troops. These soldiers were withdrawn after the socialist victory, as the party had long campaigned for. Few people believed it was in response to the Madrid outrages.
No one in Spain imagines that Al-Qaeda has removed Spain from its target list. Very probably the tough sentences handed down to its followers may even encourage it to mount another attack. The Spanish authorities are undoubtedly prepared for more plots. But this said, there is no general mood of fear and no ugly campaign of suspicion or prejudice against the large Spanish Muslim community. Maybe Spain’s long experience of Moorish rule has equipped it with a more balanced approach and greater understanding of Muslim culture. The country is clearly not prepared to let the wicked acts of a small group of deluded and murderous bigots to have it running scared.
It is also evidence of a sense of proportion. In the final analysis, even crimes as monstrous as the 9/11 attacks or the Madrid or London public-transport bombings are in reality mere pinpricks on any mature and stable society from which it quickly recovers. As Franklin D. Roosevelt said so memorably, there is “nothing to fear but fear itself”. Spreading fear is all terrorists can ever do. Their only slim chance of success is to panic a society into chaos. The Spanish today are demonstrating how to defeat them.

—Arab News