June 2000
Ishrat Husain, State Bank of Pakistan
What are the biggest challenges to Pakistan's economic
managers?
There are three major imbalances in the economy. First, there is
the existence of crony capitalism. For a long time a small group of
businessmen, landlords, industrialists and civil servants have
hijacked the beneWts of economic activity and growth. Tax breaks or
customs rebates or unpaid loans were provided to these businessmen,
creating distortions in resource allocation. This in turn has
suppressed economic growth, so the amount of investment that could
have given us 6% growth in GDP was giving us only 4%.
Two, the public sector has been living beyond its means. The
quarterly Wscal deWcit of the public sector has been unsustainably
high at 8% to 10% of GDP. This was Wnanced by domestic debt and
external borrowing but such Wscal imbalances have produced a very
high debt stock, equivalent in scale to our entire GDP. That is one
of our heaviest burdens....
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