Cover Story

How Gen. Musharraf
Restructured the Economy

Economic growth was possible from 2002 to 2008 because a strong government mobilized domestic resources and ensured that they were utilized productively.

By DR. ISHRAT HUSSAIN | August 2022

President Musharraf assumed power in October 1999 under difficult circumstances. Pakistan was already facing sanctions for nuclear testing and these were compounded by sanctions against the military takeover. External liquidity had dried up due to freezing of foreign currency deposits in May 1998. The loss of confidence and the burden of sanctions evaporated workers’ remittances, foreign investment and foreign currency deposits. The State Bank’s reserves had dwindled to cover a few weeks’ imports.

Khushbakht Shujaat

Ninety nine percent leaders demand respect, President Pervez Musharraf is among those 1% leaders who command respect.
His economic policies, foreign affairs policies and governance policies were aligned with this slogan "Pakistan First".
During his tenure of 2000-07, Pakistan positioned itself as one of the four fastest growing economies in the Asian region with its growth averaging 7% per year.

Relations with the U.S. were at their peak. Musharraf also made amends and improved relations with neighbouring India.

I recall how the infrastructure of my city Karachi drastically improved during President Musharraf’s tenure.

Some will remember him as a dictator simply because he is a military general but I will remember him as the leader who brought democracy back to Pakistan.

I will remember that during President Musharraf’s tenure there was unprecedented deregulation of the mass media, economic growth, and vibrant debate that had never occurred before him.

The new Government assigned priority to debt restructuring, and reforms in taxation, trade, financial sector, privatization of state-owned enterprises and deregulation of private businesses.

After entering an agreement with the IMF, the country’s external debt portfolio was restructured to align it with its debt servicing capacity. By re-profiling the stock of official bilateral debt through the Paris Club, substituting concessional loans for non-concessional loans from international financial institutions, pre-paying expensive loans and liquidating short-term external liabilities, the government was able to reduce the stock of external debt and liabilities as percentage of foreign exchange earnings from 125 percent from 224 percent and debt servicing to 9 percent from 26 percent.

Fiscal consolidation was achieved by raising tax revenues, reducing expenditures, cutting down subsidies and containing the losses of public enterprises. Tax reforms were undertaken to widen the tax base, remove direct contact between tax payers and tax collectors, introduce value-added tax as the major source of revenue, simplify tax administration and strengthen the capacity of the Central Board of Revenue. The adoption of universal self-assessment followed by random audit of selected tax returns, automation and reorganization of the tax machinery, helped tax collection to double in five years. Fiscal deficit remained below or slightly above 4 percent of GDP, despite the post-earthquake relief and reconstruction expenditures.

An aggressive privatization plan of State owned enterprises in oil and gas, banking, telecommunications and energy sectors yielded $ 3 billion. Foreign investors were encouraged to participate in the privatization process.

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