Oct 13 - 19, 2008

At a time when Pakistan direly needs financial assistance to ward off threats of economic meltdown, nearing closure of doors which can shore up sinking market fundamentals is indicating towards approaching economic turmoil. One closure occurred following downgrading of its rating on long term foreign currency to CCC plus-notches down to a level attractive to investors-which increased risk of its Euro bond in international market at once. Seeking economic sustainability and avoidance of tough conditions of multi lateral and bilateral assistances, economists stress on harnessing of core economic competencies especially of agriculture sector. They believe soft term foreign loans must be sought after and non development expenditures be cut down immediately. But, given the politico-economic vibes can Pakistan be sanctioned soft term loans?

Long before downgraded credit rating, government of Pakistan had constituted a panel of economists to have strategies to cope up with the current economic situation. It has to take up the slack if panel is aimed at to devise ways of goading during the next session of Friends of Pakistan in earlier October. Comprising developed G7, China, UAE, Saudi Arabia, FoP consented with the idea of working out financial assistance programme for Pakistan.

"I don't have an idea whether these strategies are aimed at to attract particular group help," told a member of panel, Riaz Riazuddin, to this scribe on telephone from Lahore where panel of economists were in to finalizing economic recovery plan. He was unaware whether strategies would be presented before any international donors meeting.

"Current economic situation demands comprehensive economic policies," he says. Since Prime Minister wanted opinions of economists we were preparing them "exclusively for Pakistan", he adds.

"There is no need to reinvent the wheel," commented Director Research Economist FPCCI, Iqbal Tabish with reference to economic reforms. What is needed is to implement and execute already-prepared policies in letter and spirit, he says. At this crucial time period operational costs should be sliced down as much as possible so that non development expenditures become thin. He also said prodding at fundamentals of economy would be an exercise in futility.

Downgraded credit rating is not only increasing the payment cost on securities but also debt costs. Too it pulled credit default swap ratio on Euro bonds to above 30% which is an alarming level. This may discourage prospective foreign investment in Pakistan's Euro bonds. Pakistan's five year Euro bond of $500 million is already on maturity stage and outstanding on February next. Foreign reserves of Pakistan dwindled half to an unexpected figure of about $8 billion. Held by the State Bank, this figure is further half.

Trade deficit of staring two months of this fiscal year was $3.7 billion while Pakistan has to meet its debt obligation of $3 billion very soon. Standard and Poor's rating was said to be labelled owing to depletion of foreign currency reserves and national worsening security atmosphere. Without mobilizing external support servicing matured debts and preventing default out of decreasing reserves altogether smack of utopianism and sound impractical. Let prognosis prevail upon springing tough conditions multi and bilateral financial assistance are characterized with. No foreign liquidity lends in Pakistan's economy with circumventing over credit risks which already have been declared high by the rating agency. Its cost would double than normal. Tough conditions like removal of subsidies and increment in electricity tariffs, and high interest rate are few of the popular criteria of foreign loans country fellows have been enduring to.

Despite international liquidity crunch, Pakistan's economy would qualify to foreign debts. However, this would be an evil in disguise. IFIs are least bothered about deteriorating life standard in indebted economy due to high cost of borrowing. It is yet to surface how much October conference would be effective. It is said economy urgently needs $10 billion.


"Self reliance is an ideal way out of this trapping economics of foreign lenders," says Iqbal and adding domestic investment should be promoted. "Domestic investors have the potential to rescue sagging national economy." For it, afresh economic reforms are not required, he opines. Instead all earlier well researched policies should be executed and development of agriculture sector is focused, he adds. Security of investment is the main concern, if insecurity disappears storm of investment could be evoked from within, he said.

This economic self reliance can be achieved through focussing on agriculture sector as this remains the only sector that earns nation highest foreign revenue. Government has increased wheat support price by Rs. 450 per 40 Kg to Rs. 950. While this double fold surge brings a sigh of relief to farmers, it multiplies worries of flour consumers as it results in increase of per kilo rate of flour. Crop insurance facility is a favourable step towards agrarian development.

The underlying problem in agrarian sector is low per acre yield. Thereby, country has to import crops to meet shortfall causing rise in import bill. Only this year, government owes Rs. 60 billion on account of wheat imports. Government set 25 million tons wheat production target for this year. However, rice earned $1.18 billion revenue. Last year production of rice was 5.5 million tons. This year also country will have sufficient rice produce to import to earn same or above foreign revenue and to supply locally at low price because of surplus remnants of last season. The actual production figure can be estimated in December as season continues from April to November. By expanding productions of crops not only dependence over import is reduced but exports can supersede imports.

Iqbal Tabish suggests six months ban over import of unnecessary products will be helpful in impeding foreign reserves downfall.

Since financial assistance takes time to arrive, government should show austerity in its non development expenditures. It is good that government disbands dissemination of congratulatory messages on media. International tours should also be limited.