1 - 7, 2010

In the end of first half of current fiscal year (2009-10), Pakistan's balance of payment's position improved to a relatively better level as compared to the corresponding period of last financial year, when all main heads were witnessing downsides and the country was under the risk of default on foreign payments.

To begin with, the gross development product (GDP) of the country increased to $91.44bn in July-December 2009 from $83.28bn in the same period previously. Though the rate of GDP growth was not on par with the population growth rate that hovered around about 4 percent perilously and much below the average rate of almost 7 percent maintained five years before 2008, yet it inflated the size of the economy. Net reserves with SBP stood at $11.28bn as of December 2009 while total liquid reserves were $15.06bn. The foreign reserves are depicting an upward trend as at 23-Jan-10 they reached $15.103bn.

On the other hand, current account in percentage of GDP slid off strikingly to negative 1.9 percent in first half of 2009-10 against negative 9.4 percent in the same period 2008-09. Pakistan faced current account deficit of $1.75bn in July-December 2009, which was an improvement from the deficit of $7.84bn in July-December 2008. The main reasons for the decline in deficit were improvement of trade balance as well as rise in current transfers in the first half.

Trade deficit was decreased to $5.71bn from $8.21bn as exports declined to $11.18bn from $12.16bn and imports to $18.43bn from $22.71bn, resulting in downturn in growth rate by 7.8pc and 18pc respectively in first half of 2009-10. The export and import grew 8.5pc and 18.2pc in first half of 2008-09. Inflows of workers remittances and deposits in foreign currency accounts (FCA) improved the current account balance. Workers remittances stood at $4.53bn as of end of first half in contrast to $3.64bn in the comparable period. Transfers in FCA stood at $376mn as against negative $212mn. However, current transfers were debited by $53 million in the first half as against $62mn in corresponding period.

During July-December 2009, Pakistan received $33mn as project grants. In the comparable period, this amount was $47mn. Overall, capital account registered a reduction to $50mn from an earlier $72mn.

Pakistan's direct investment abroad increased to $37mn in July-December 2009. The country maintained the policy of withdrawing its portfolio investments in the first half, whereas it incurred portfolio investment liabilities of $271mn in debt and equity securities. Altogether, financial account position was stable as it held $3.19bn as of December 2009 as compared to $3.02bn earlier.

In the first half of current fiscal year, the government pocketed $2bn wide range of loans. It received $1.72bn as disbursements of long- and short-term project, programme, commercial, and IDB loans. Since the focus of the government is on economic restructuring, the programme loans remained a principal trigger of investment liabilities. The government grabbed $1.59bn programme loan in the first half, the highest disbursement in all loans including project loans etc., as compared to $716mn in the comparable period.

Pakistan is one the developing countries that need external support to fund its economic development projects related to poverty alleviation and upgrades of economic sectors. Various bi- and multi-lateral borrowers including World Bank, Asian Development Bank, group clubs like Paris club, International Monetary Fund, etc. extend finances to the country for social and economic developments. The loans generally fill the budgetary gaps caused due to revenue shortfall. The shortfall in balance of trade is also one of the reasons that propel the country towards foreign lender to meet import payments.

This very resource constraint gave way to popularly disliked resumption of lending programme by the IMF in the economy. It is however, a bitter fact that had the multilateral lending that is a single largest financial assistance for Pakistan at present not injected dollars to the feeble balance of payment, Pakistan would have all but failed to meet its foreign obligations emanating out of overwhelming trade deficits and accruing debts repayments. Why the country reached to the point of delinquency at the first place is a question to be answered in separate space.

The graduation from Washington-based macroeconomic programme during the last government was revoked by the government of the time when it borrowed $7.6-that was revised to $11.3 billion-from IMF to plug holes in the balance of payment appeared because of full-throated freefall of foreign reserves which brought down rupee value to historically low level against a dollar in the spur of one month or two in addition to inflation spike. A dollar shot from the longstanding difference of Rs60 to a rupee and foreign reserves plummeted to a dangerous level of $6 billion before the financial rescue operation of the foreign lender. Foreign reserve position started to stabilize though rupee could not regain its value of two-year back.

Overall, macroeconomic indicators improved, but trickle-down effects that had people borne with consumption-led growth of Mushraff and allies for five years did not get through, and not even under the stabilization programme of the present government.

IMF conditions its standby arrangement with the implementation of its devised structural programme in the debtor country, which is subject to be reviewed prior to disbursement of tranche. Pakistan is implementing the economic reforms as per the guidelines of the IMF, which is evident from the lender's docility in regular tranche-disbursal. However, the country is not near the point where it can be out of danger of stagnant internal revenues, which is important to not only debt servicing but also to make economy self-sustainable. The country seems to be out of balance of payment crisis as per the figure of July-December 2009. However, the recovery was unfortunately not due to rise in exports. Economic slowdown spurred the resurgence of current account.