Economic realities lurk beyond Pakistan's upswing

Thanks to a run of good crops and overseas sales, the thrift of Pakistanis working abroad, and favorable smiles from international aid donors and financial institutions, Pakistan's drooping economy has gone on the upswing.

But it remains to be seen whether the conditions attached to a massive International Monetary Fund bailout can permanently right the economic habits of a country long accustomed to living beyond its means.

Soaring bills for oil imports have done their share to devastate Pakistan's economy, as indeed they have in most of the developing world.

But many of Pakistan's economic wounds have been self-inflicted, such as overly tight controls, tolerance of a lackluster public sector, long-term neglect of industrial development, a taste for costly imported consumer goods, and domestic political instability which has frightened off large-scale private investment.

On the surface there is an air of prosperity about Pakistan. Savings sent home by its 2 million overseas workers have driven up annual per capita income to $283, the highest in the Indian subcontinent. Televisions, refrigerators, air conditioners, radios, and other appliances sent or brought home by the migrant workers are proudly displayed in even remote villages.

Imported cars fill the streets -- Pakistan neither makes nor assembles any of its own -- and shops are well-stocked with American, European, Chinese, and Japanese goods. Visitors accustomed to outstrectched hands everywhere in India are astonished at their freedom from beggers. High level bureaucrats and businessmen dress nattily in well-tailored suits.

But although the economy looks in the black, the books are written in red.

Export sales have increased by a substantial 40 percent in the last year. But this year's import bills are estimated at $4.5 billion -- more than double the anticipated export earnings of $2.2 billion.

At the end of 1979 Pakistan owed $8 billion to its overseas creditors, nearly 32 percent of its gross national product. Debt servicing -- repayments -- reached a dangerously high ratio to export earnings of 38 percent.

Despite hefty hard currency remittances from overseas workers. Pakistan at one point last year had only enough foreign exchange in the till to pay for two weeks worth of imports.

Pakistanis continued to increase in numbers by 3.1 percent a year, the highest population growth rate in the Indian subcontinent. The new mouths will help eat up much of Pakistan's genuine economic gains -- including 6 percent agricultural growth, an 8.1 percent increase in manufacturing, and an overall 6. 2 percent growth in gross domestic product.

Pay packets sent home by overseas workers are no longer enough to cover the balance-of-payments deficit, and they helped send inflation soaring into the 14 to 20 percent range.

Although small-scale industry flourished, thanks to its relative freedom from government regulation, big investors generally sat on their hands or sank their money into quick-high profit ventures such as trading rather than long-term productive enterprises. Swollen staffs, low productivity, inefficient management, and low or no returns continued to mark most government-run enterprises.

Ironically, the Soviet invasion of neighboring Afghanistan is proving to be Pakistan's economic salvation -- at least for the time being.

Suddenly, Pakistan was seen through new eyes as an important buffer against further Soviet expansionism. Observers believe it was more than a concern for Pakistan's economic health that led the aid-to-Pakistan consortium to increase its economic assistance to $1.08 billion and agree to postponement of Pakistani debt repayments due last year.

The International Monetary Fund also checked in last year with a commitment of $1.7 billion over a three-year period from its extended fund facility, the largest IMF loan ever made to a developing country.

In turn, the IMF has demanded measures aimed at greater agricultural and industrial output and stabilization of the Pakistan economy. Among them are reductions in politically popular but costly subsidies on such essentials as fertilizers, kerosene, and utility bills; tight credit to hold down the runaway growth in money supply; tax restructuring, and a liberalized import policy to bring in more raw materials, machinery, and semi-furnished goods that would ultimately enable the country to produce more.

The government of President Zia ul-Haq is already moving on these measures despite some high risks: Domestic rumblings over higher prices as subsidies are reduced and the possibilities of even greater inflation and trade deficits in the short run.

The question is whether President Zia's shaky martial law regime has the politicaL will to see them through -- and finally set Pakistan on the road to sound economic management.