A RETROSPECTIVE VIEW OF 2006
KHALIL AHMED, Senior Correspondent
Dec 25 - 31, 2006
The world economy during 2006 saw the impact of rising trend in inflation, higher interest rates, surging oil prices, soaring gold prices, energy crisis, boom in telecom, bird flu, poverty, crime, corruption scandals, natural disasters, terrorism etc. The economy of Pakistan experienced the impact of October 2005 earthquake, shortage of electricity, higher food and housing prices, import of over 45,000 units of vehicles during the last fiscal year, interest of foreign investors in the country, issue of poverty, high sugar and cement prices for some time, boom in the telecom industry, high oil prices etc. A few issues such as the construction of dams, Iran-Pakistan-India gas pipeline and terrorism also became headlines during the said year in Pakistan.
The very first day of the year, January 01,2006, brought the news that the government had notified an across-the-board 15.51 per cent increase in gas prices for all consumer categories throughout the country with effect from Jan 1, 2006. The increase in gas prices coupled with the soaring international oil prices was a kind of fuel to inflation as the cost of doing business increased which ultimately fueled the prices of various products. Oil prices which stood at $20 per barrel in 2002 skyrocketed to even $78 per barrel during 2006. This off course fueled the inflation across the world and the impact was very much there in Pakistan as well. At present, oil prices stand at $63 per barrel and since the OPEC has decided to cut production, the oil prices may soar again to some level. High oil prices have damaged the revenues and profits of organisations. PIA, the flag carrier, suffered the loss of Rs.10 billion in the first ten months of the current year mainly due to high oil prices. PIA's aging fleet, not fuel efficient, consists of 34 aircrafts and majority of them are over 20 year old carriers. The government has decided to offer Rs.20 billion to the national flag carrier to meet the losses. High food and housing prices were the big hurdles in a way to the economy of our country during 2006. A common citizen undoubtedly is the victim to the double digit food inflation in our country. Now when the interest rates have been increased in many countries of the world, the same scenario is prevalent in Pakistan as well. The lower interest rates particularly from 2001 to the mid of 2006 helped the industry of our country grow. Since the interest rates have been increased, its impact, positive or negative, could be seen in the days to come.
The year began and is going to end with the pledge by the authorities that the country is in dire need of more water reservoirs. It has been announced recently that all dams including Kalabagh dam would be constructed by 2015 for the economic prosperity of the country. Some circles believe that construction of dams is vital for our future progress while others think that construction of some dams would deprive the population of a certain province of its right. Apparently, it seems that the country needs to take the steps for the construction of the dams sooner rather than later to avoid unavoidable, and for this it is essential to get the consensus of all parties by convincing them for the benefits which would be attained through the increased water storage capacity. It is also to be known that in the very beginning of the year the World Commission on Dams (WCD) had said that large dams built round the globe had produced more disadvantages than benefits. During March this year, India conveyed its protest to Pakistan over the proposed construction of the Bhasha dam in Azad Kashmir. Well, there is no denying the fact that dams are sine qua non for our country incase we are serious enough to solve the power and energy crises in future. Well, it is to been seen after 2015, once the construction work of all dams is over, how beneficial these dams which are largely funded by foreign sources, would be for our economy. The critics do believe that the dams such as Kalabagh dam and Basha dam would never be built because of lack of funding.
Bird flu gripped the world in the first half of the year 2006 and even now some countries such as North Korea are said to be suffering from it. The Pakistani poultry industry which invests around Rs 100 billion per annum and produces over 75,000 tons white meat every year contributing over 40% meat consumption in the country suffered a great deal. It is believed that the industry with over 25000 poultry farms incurred loss worth over Rs 7 billion during the second and the third month of the said year. Besides, the country had to import red meat to meet the demand. The fear of the Avian disease, first seen in human in Hong Kong in 1997, did leave a minor negative impact on the Pakistani economy as it devastated the livelihoods of hundreds for some period of time during the year.
Along with the shortage of sugar and cement during a particular period of the year, skyrocketing gold prices did hurt the consumers in Pakistan. The rising trend in gold prices is the result of high inflation across the globe. Huge amount of investment was made in the commodity which fueled the prices. In December last year, the gold prices touched the $500 per ounce mark and during December 2006 the prices per ounce are in the region of $623. The gold prices went as high as $714 per ounce during 2006. During 2003, the prices of the metal were $320 per ounce and it must be known that all time high gold prices were $ 850 per ounce during 1981. At present, per ten gram prices are around Rs 12,548 in Pakistan which is beyond the affordability of millions of citizens.
Poverty is one of the major issues in the world. According to a survey conducted during the current year, more than one billion population of the world lives in slums. Despite the recent economic growth in Peru, a South American country, four million people including two million children live in extreme poverty. Hundreds of the US citizens live on the streets in New York. One quarter of the total Pakistani population lives in poverty. Despite the robust economic growth during 2004-05 (8.6 percent), during 2005-06 (6.6 percent ) and the targeted 07 percent during the current fiscal year, over 37 million Pakistanis are living below the poverty line.
Telecom boom has been witnessed in the world, particularly in South Asia. Vodafone is set to launch $13.5 billion bid for Hutchison Essar, the 4th largest cell phone operator in India. India has become a colossal market as there are over 130 million cell phone users in the country. Pakistan has witnessed significant investment in the telecom sector due to potential growth in the sector. At present, there are around 40 million cell phone users in Pakistan and the cell phone operators are facing tough competition with higher returns in the market.
Energy crises do prevail in the world. High fuel prices have paralysed some economies and benefited the economies of Saudi Arabia, Qatar, Iran, Venezuela, Russia etc. Russia during 2006, according to some sources, dictated its terms to Europe for its gas. 25 percent of the total gas used in Europe comes from Russia and major chunk travels through Ukraine. Pakistan does need the gas from Iran. 2006 is going to end with no concrete progress made over the $ 7 billion Iran-Pakistan-India gas pipeline project.
2006 is going to end with both good and bad news. We should hope and pray that the new year will bring the peace and prosperity everywhere in the world.