Oct 12 - 18, 2009

The forces of globalization and the impact of subsequent global financial meltdown affected Pakistan's economy in various ways. The globalization agendum was heavily loaded in favor of the developed nations. Developing economies with low levels of technological advancement, captive economic and financial systems, and interventionist monetary decision making were made to suffer in consequence of the onslaught of globalization.

The liberal trade policies, open competition, biased tariff structures played havoc with the developing economies whose markets were flooded with the cheaper goods dumped by the developed economies who benefited from technological edge and economies of scale.

Although masses in developing economies enjoyed the availability of cheaper foreign goods, yet their industries were driven out of business giving rise to unemployment and poverty. On the export side too, the abolition of quota rendered the products of developing economies uncompetitive on both price and quality sides.

Pakistan's textile sector was hit under the belly due partly to its own inherent deficiencies and partly to the ruthless forces of globalization.

Only those developing economies enjoyed the fruits of globalization that were at an advanced stage of development, enjoyed a stable political system, and were capable of making swift policy changes to adjust to the changing economic scenario.

Unfortunately, we have never been at an advanced level of development, and have developed a habit of existing under political uncertainties brought about by uncalled for government changes, and also have a huge monetary as well as fiscal deficits owing to the inefficient and interventionist government structures.

Until 2007, globalization appeared to have a beneficial influence on our economy when it used to grow at an average rate of seven per cent. Then came the "long due" political intervention and the then burgeoning economy came down like a house of cards. The unprecedented dollar flight and choked inflow of foreign investment created huge dents in the economy. The dollar that once appeared pegged at Rs.60 (or thereabout) went soaring up to Rs.80 within no time. The impact of this change was catalytic. The masses already reeling under the shock of global food inflation were made to suffer from the effects of sharply reduced purchasing power of rupee.

Owing to the costlier imported inputs, the cost of production went suddenly up and so did the consumer goods prices. The large-scale manufacturing sector recorded a negative growth. The benefit of falling global oil and food prices was neutralized by the falling rupee value and the masses remained stuck in the quagmire of inflation.

During the last one year, although the CPI has come down from 25 to 11, the core inflation is showing no signs of a turnaround. .

Our economy, though showing signs of recovery, has been through a phase of recession caused partly by the global conditions and partly by the sliding rupee. What surprises one is the fact that no conscious efforts are being made by the State Bank or the economic managers to arrest this trend. If the exchange rate went up from Rs.61 a dollar to Rs.80 a dollar during the worst economic period, it was something to be endured, but its further slide to Rs.83 (+) a dollar in the wake of much improved economic conditions and reserve position, was somewhat paradoxical. According to a Dawn article by A.B Shahid, SBP provides exchange cover for crude oil only, while banks arrange dollars from the open market for payment against L/Cs opened for the import of other petroleum products including the much important furnace oil. The open market 'collaboration' of banks and exchange dealers sets the exchange rate, which is a risky proposition. The prices of petroleum products may go up any time and thus push the exchange rate further up to the detriment of the economy and the common person.

SBP should review this mechanism and apply checks and balances to control the banks and exchange dealers who are known for harming the national interest for filthy gains. Stability of exchange rate is not a trivial issue to be left for the banks and exchange companies to resolve. On this issue hinges the economic future of this country. Timely IMF assistance and a regular and improved flow of foreign remittances pushed back the economy from the brink of disaster.

While debate is on to ascertain the role of remittances in an economy's development, the fact remains that these remittances are holding the fort in a big way. While being used for bridging the yawning balance of payment gaps, these remittances activate the domestic markets and improve the quality of life of their beneficiaries. The regular dollar inflow through remittances helps maintain exchange rate stability that is vital for the betterment of economy.

National savings rate and domestic investment are also perked up by this inflow.

Workers Remittances in million US $ (Source : Pakistan Economic Survey)

COUNTRY 2004-05 2005-06 2006-07 2007-08 2008-09 (JUL-APR)
I. Cash Inflow 4,152.29 4,588.03 5,490.97 6,448.84 6,355.13
Bahrain 91.22 100.57 136.26 140.51 127.64
Canada 48.49 81.71 87.20 100.62 65.07
Germany 53.84 59.03 76.87 73.33 80.26
Japan 6.51 6.63 4.26 4.75 3.58
Kuwait 214.78 246.75 288.71 384.58 360.31
Norway 18.30 16.82 22.04 28.78 19.58
Qatar 86.86 118.69 170.65 233.36 276.70
Saudi Arabia 627.19 750.44 1,023.56 1,251.32 1,264.07
Oman 119.28 130.45 161.69 224.94 231.37
UAE 712.61 716.30 866.49 1,090.30 1,366.79
UK 371.86 438.65 430.04 458.87 467.98
USA 1,294.08 1,242.49 1,459.64 1,762.03 1,435.65
Other Countries 507.27 679.50 763.54 695.45 498.09
II. Encashment* 16.50 12.09 2.68 2.40 0.45
Total (I + II) 4,168.79 4,600.12 5,493.65 6,451.24 6,355.58

* Encashment and profit in Pak Rs. of FEBCs and FCBCs

During the fiscal-09, Pakistan received a record total amount of $7.811 billion on account of foreign remittances. In the first two months of fiscal-10 these remittances totaled to $ 1,525 billion. When annualized, these figures place the whole year estimate at $ 9 billion plus. Government's PRI (Pakistan Remittances Initiative) program is a positive step towards broadening of this vital resource mobilization base.