By AMANULLAH BASHAR
Mar 24 - 30, 2003
Pakistan Day, the historic occasion which had provided the basis and spirit for creation of this country was observed under a pall of gloom hanging all over the globe due to Iraq war.
"War, in Martin Luther's words, is the greatest plague that can afflict humanity; it destroys religion, it destroys states, it destroys families. Any scourge is preferable to it".
It is not only unfortunate but tragic that despite strong opposition from all over the world and by the United Nations, the US violated the UN Charter for its unilateral decision by taking military action against Iraq.
The government of Pakistan while condemning the military action has described the US-threatened war against Iraq as unjustified. Foreign Minister Khurshid Mahmud Kasuri while addressing the House said that there was no justification for this war.
Rejecting the US appeal to severe diplomatic ties with Iraq, various countries including Pakistan have said that they are not going to close their embassies in Iraq on the will of the US. Besides Pakistan, similar decision has been taken by France, Germany, Russia, Canada, Aljeria and Malaysia. The postponement of Prime Minister Zafarullah Jamali's visit to the United States, UK and France is a natural reaction as it may not help politically in any case at this occasion.
The immediate fall out of the Iraq War is going to hit the oil prices due to obvious disruption in oil supplies from Iraq being the major oil producer. The earlier estimates of $3 billion oil imports are feared to escalate up to $4 billion due to increase in oil prices. This would be an additional burden on the economy which had started to take turn around due to better performance and adherence to the economic reforms introduced by the present government. The increase in freight charges and imposition of war risk surcharge by the insurance companies is yet another factor which may adversely affect the pace growth both in imports and exports from Pakistan. As an immediate effect of war, the buying and selling of the essential items in the domestic markets have virtually come to a halt, as the major players like to sit on the fence in an uncertain situation. Hence there was an status quo position in the market till right of this report. The situation may have a multiplier effect on general prices if the US-led war prolongs.
The economy during the year performed exceedingly well as all financial targets were well not only within reach but may go beyond the benchmark in almost all directions.
The unprecedented growth in foreign exchange reserves is set to hit $11 billion mark against the target of $10 billion at the end of the financial year. The home remittances have also registered a record growth and are likely to reach the level of $4 billion during the year. The strong economic fundamentals would certainly help the economic managers to formulate development and growthoriented budget for the next year which may provide the much sought after relief to the common man. As a result of good economic performance and improved financial health of the economy, more funds are expected to be available for health, education and agriculture in the forthcoming budget.
Pakistan was spending about 75 per cent of its resources on debt servicing, which leaves no space for development project or other public welfare plans. As a result of fiscal discipline better decisions, economic reforms and consistency in policies, the debt servicing are likely to come down from 75 per cent to 25-30 per cent during next two years which may be described as the most heartening economic achievement of the national economy.
According to State Bank of Pakistan, the ratio of debt servicing to foreign exchange earnings to decline from 75 percent 2000-2001 to 25-30 percent range in 2004-2005 and assumes that the high cost of National Savings Scheme will continue to be brought in line, allowing the government to run primary surpluses in its budget, as in the last four years when nominal GDP growth rate exceeded the implicit rate on public debts.
The cotton and textile sector which is the spearhead of the national economy has achieved an export growth of around 3.5 per cent during the year and is likely to up well beyond $6 billion at the end of the financial year.
Anjum Saleem newly elected chairman of All Pakistan Textile Mills Association (APTMA) feels that the consistency in the economic policies have helped to achieve better results. He said that during one and half year, the textile sector made an investment of over $1.5 billion for expansion of the existing facilities and on BMR. As a result of these investments, the production capacity of the sector improved remarkably. The growth in the textile sector is reflected in the increase of consumption of raw material including cotton i.e. from 9 million bales to over 12.5 million bales this year.
Although the strong industrial base in the textile sector has started foreign investment in this sector, yet the local industry has the potential to meet all the challenges in the world market. The textile sector is likely to continue as the leading player in the national economy in the years to come and may contribute handsomely, if level playing field is provided by the people at the helm of affairs. The only irritant disturbing the minds in the textile sector is said to be undue production to the polyester sector by imposing heavy duty on import of polyester fibre and slow compliance of the refunds which creates liquidity problems for the industry.
LARGE SCALE MANUFACTURING
The noticeable growth in large-scale manufacturing, increased agriculture products following a pick-up in both domestic demand and export activity, has brightened the prospects of the national economy.
The large-scale manufacturing growth has tripled, agriculture-sector was expecting to meet the target of 2.2 percent and the six months exports increased by 16.6 per cent.
Contrary to the earlier situation, it was encouraging that the private sector credit demand from banks has jumped very sharply.
Accordingly, the private sector credit reached Rs76.8 billion by end-December 2002. The increase probably reflects both, reduced political uncertainty and a sharp cut in domestic interest rates.
Considerably low rates of lending, large liquidity with the banking system, fierce competition among the banks and lower remuneration on government securities were pushing the financial institutions towards new avenues such as, consumer, mortgage, personal loans, SME and agriculture financing and targeting new customers, particularly in the middle class.
This was likely to boost domestic demand, while continued decline in export finance rate, low cost dollar loans to the exporters and stable exchange rate would help the export sector of the economy.
However, country has still a long way to go before the incidence of poverty is significantly reduced, employment generation takes place on a wide scale and the standard of living of the common man takes a turn for the better. But the route to achieve these objectives is not through ad hoc short-term temporary palliatives, but by adhering to the course of reforms, good governance, political stability and hard work by the nation.
Another bright spot for the economy appears to be the good fiscal turnout, with the first half of the financial year deficit held to 1.6 per cent of the GDP, comfortably within the annual target of 4 per cent of the GDP, comfortably within the annual target of 4 per cent of the GDP.
However, a quarterly break-up of the consolidated federal and provincial fiscal performance depicts a mixed result.
The revenue picture is quite exceptional, with sustained strong growth in tax revenues and non-tax revenues during the financial year.
On the other hand, expenditures too have accelerated, with the 9.6 percent year-on-year basis increase being concentrated in current spending, rather than on development. It was worth noting that the spurt in consolidated expenditures was because of a Rs35.3 billion rise in provincial spending, the federal government, encouragingly, has maintained fiscal discipline. Improvements in the fiscal deficit generated through low development spending are not desirable for he economy in the long run.
In any case, the fall in the fiscal deficit and the relatively higher availability of non-bank credit allowed the government to significantly reduce it borrowings from the banking system. Specifically, the government's need for rupee borrowings declined sharply, as approximately 73.6 percent of the fiscal deficit during first half of the year funded by external inflows. As a result, the government 's domestic funding requirement for the period was a mere Rs8.8 billion.
Pakistan has successfully completed its macro-economic stabilization program initiated in December 1999, but the county has still a long way to go before the incidence of poverty is significantly reduced, employment generation takes place on a wide scale and the standard of living of the common man takes a turn for the better.
Dr. Ishrat Hussain, governor SBP has submitted to the Senate that the outcomes for the current fiscal year will, by and large determine whether Pakistan is indeed moving towards a 6 per cent GDP growth trajectory targeted for 2003, onwards or not. If the growth rate of 4.5 per cent is attained this year and the Iraq war or any other shock- domestic, regional or international does not cause a major disruption, it is quite likely that Pakistan would be able to strike GDP growth of five and 5.5 per cent during next financial and six per cent in 2005.
However, the transition to growth requires political stability, good governance and sticking the course of reform instead of going to short-term palliatives. Downslide risks of worsening geopolitical situation, domestic violence, stresses in the working of Parliament are affecting investment decisions and could impact the growth targets.
Public sector organizations like WAPDA and KESC continue to pose a threat to government's fiscal deficit reduction objectives. The annual losses in these two organizations alone are running in billions of rupees on account of power theft which terms as line losses. If this trend of losses which is said mainly due to corruption within these organization was not effectively checked, it could affect the public sector development program of the government. It is unfortunate, that instead weeding the corrupts within these organizations, the easy way out is to conduct raids on the consumers and levy heavy penalties if an irregularity. Why that irregularity was allowed or overlooked by the staff responsible. Responsible staff of these two organizations should also be penalized under whose jurisdiction the irregularities were found. As there was a rule that charity should begin at home.
The increase in Public Sector Development Program (PSDP) expenditure has, however, become feasible because of the fiscal space available due to reduced burden on debt servicing and growth in tax revenues.
Low rates of lending, large liquidity with the banking system, fierce competition among banks and lower remuneration on government securities, are pushing the financial institutions towards new avenues.
The macro-economic stability which has come about due to a combination reforms (financial sector reforms, tax reforms along with agricultural produce prices to international prices), sound but tough policy decisions such as removal of subsidies, deregulation of prices, free float exchange rate, improved economic governance, reduced leakage in public expenditure and good luck remittances began to flow through banking channels and capital flight was partially reversed, contributing to the outcome. It is clear that the reforms process at this point is quite fragile and needs to be nurtured by the new government to get the confidence of the investors who are presently sitting on the fence.
The flow of foreign direct investment during the period July 2002-February 2003 amounted to $630.07 million, showing an increase by 148 percent as compared to the corresponding period of last year which was $245.5 million. During February 2002, the inflow of FDI was $37 million. Among the areas which attracted the foreign investment, the prominent sectors were financial business (211 million, chemical 80 million, transport 58 million, trade 30 million, power 26 million, trade 30 million, power 26 million, textile 21 million and communication 20 million.
The percentage share of major sectors in FDI inflows were financial business 34 percent, oil and gas 20 per cent, chemical 13 per cent, transport 9 per cent, trade 5 per cent, power 4 per cent and other sectors 15 per cent.
UK took the lead during this period by investing $196.9 million and USA as at second position with FDI of $162.5 million, UAE being third $110 million. The share of major investing countries in FDI comes to UK 31 per cent, USA 26 per cent, UAE 17 per cent, Saudi Arabia 5 per cent, Japan 2 percent and 19 percent from other countries.
The visits of foreign business delegations to Pakistan also increased during the last three months. Investors delegations from Europe, Bahrain, China, Singapore and Saudi Arabia visited Pakistan to explore potential and to have a meaningful interaction with the private sector. The Singaporean investment and trade delegation Investment and Trade delegation during the visit in January this year indicated interest in IT, oil & gas, education and infrastructure projects besides import of Pakistan's products.
The sizeable increase in the flow of FDI is an indicator that investors perception about Pakistan is improving. The Board of Investment has initiated a number of steps to eradicate irritants and to restore confidence of investors. A conference of OIC countries on Investment & Privatization is also scheduled this year in Islamabad in collaboration with E-Commerce Gateway Singapore and Islamic Chamber of Commerce and Industry. According to an estimate the FDI inflows during the whole financial year is expected to touch one billion dollar mark by the end of June this year.
The government has earned Rs2.8 billion by privatizing various public entities through stock market in a short period last two months.
During the last few weeks, the government has achieved much progress in privatization that even was not made by some of the previous governments in their entire tenures.
Encouraged with the results so far achieved, the government now seems determined to place Pakistan State Oil (PSO) on the bidding which would be held on April 26, afterwards, Habib Bank would also be taken for privatization in two to four months time.
Government, in accordance to its investment policy has decided to reform the Board of Investment. Accordingly, the Chief Ministers of all the four provinces and leading businessmen would also be brought in the Board.
Continued huge inflow of remittances touched a record increase of over 105 percent in the first eight months of the current fiscal years.
During the year from July 2002 to February 2003 home remittances amounted to $2.874 billion, against $1.399 billion during the same period of last year which, is an increase of 105.34 per cent.
The amount included cash flows, encashment of FEBC's, Haj remittances and remittances from Iraq-Kuwait war affectees.
Out of the total remittances of $2.874 billion received in the country during July 2002 to February 2003, workers remittances contributed $2.745 billion as against $1.317 billion dollars during the corresponding period last year showing an increase of 109.05 per cent.
The total amount remitted in February 2002 was $342.77 million as compared to $233.85 million in February 2002 posting an increase of 46.58 per cent. The high-speed remittances have already pushed the country's total foreign exchange reserves to over $10 billion which was the target set by the government for the year 2002-2003 but was achieved in eight months.
The ministry of finance believes that the total remittances by the end of the current fiscal would be over $4.1 billion. It encourages analysts to say that Pakistan might touch reserves of about 11 billion by the end of the current fiscal year. Forex dealers, however, were found first that the dollar would continue to shed its weight against the rupee and the State Bank from the importers and others who are not benefiting from the current US dollar rate against Pak rupee. They argue that the current dollar-rupee parity is not transparent, which hurts the interest of a large business sector in Pakistan.
Pakistan Day is celebrated by the nation every year on March 23 to recall the memorable day of March 23, 1940 when the Muslims of the sub-continent had reached a consensus for creating a separate homeland where people could live in accordance with their religious, political, social and economic will. More than half a century has gone but those dreams have yet to come true. It is strange that despite passing through the most difficult times in terms of economic conditions, those who claim to be the representatives of the people have not taken the lesson. Their main interest is to serve the party interest they belong instead of talking about the issues confronting the poor, they are consuming their time and energies for their party interest. This is the time that nation should draw the line for national priorities which should be treated above all interests. The need of the hour is to make a strong Pakistan in all respect so that no power on earth could cast an evil eye on this land. This target can be achieved only when the people of this country get united by shunning all political, regional and sectarian and ethnic differences because the people are the real wealth of this country. Those who have any sort of authority should learn to respect the people especially the younger generation — the future of this — instead of humiliating them on the roads just to extort money. Humiliation, maltreatment and highhandedness and bribe under the cover of authority never help building up the nation instead unleash feelings of hatred for the system, law and even for the country!