Feb 8 - 14, 2010

The forced management of liquidity crisis through IMF stand-by-arrangement and near-stabilization of world oil prices had hardly started to settle in when the sudden outbreak of violence in Karachi dashed all hopes of an early economic recovery.

The December 28 mayhem and the subsequent 2010 target killings have set the economic wheels of Karachi, the nervous system of the country, in reverse motion. The December 28 arson incidents have cost the economy a straight 30 billions rupees. Around 4000 shops in the wholesale market were gutted leaving thousands of families bereft of bread earning means. The disrupted supplies of daily use items pushed the retail prices considerably up making the life of a common person much more difficult. The rehabilitation process is painfully slow but the resolve of the affected businessmen to regain ground is commendable. These circumstance are not new for the Karachites.

The December 27, 2007 burning of Karachi for 3 days is still fresh in their memories. Such off and on incidents of economic sabotage have hardened them to the reality that the best way to survive is never to say die. The situation at the federal capital is not much different where citizens have ceased to throng at shopping centers, obviously for security reasons. This has drastically reduced trading volumes putting the business community under low turnover pressures.

The first half of FY-10 has given country's economic managers a reason to be optimistic about the start of economic recovery process. However, the law and order situation will remain a big question mark on the possibility of an economic turnaround.

When compared with the economic performance during the corresponding period of FY-09, the improvement in external account position, steady inflow of workers' remittances, reduced government borrowings through the banking system, positive growth in LSM sector, improved cotton output, and a stable outlook forecast made by the sovereign rating agencies are the few things that raise hopes of a better economic future.

The looming specter of deteriorating law and order, the depreciating rupee (hardly showing any signs of resilience), the fresh wave of inflation ready to surge in the wake of mindless increase in the prices of all forms of energy, a sluggish private sector credit off take, and the dented confidence of foreign investors are the things that stand in the way of an improved economic performance during the second half of FY-10. While SBP and ADB reports have predicted some improvements in the economy during the next half-year, the outcome will mostly depend on how we perform on public security front.

The economy during adverse law and order situation is exposed to a number of other problems that hamper its growth. The escalating terrorism is yet another negative, which threatens not only the economy but also the security of the country.

Circumstances have proved that unlike bad law and order situation, which restricts itself to the national boundaries, the terrorism threat assumes global dimensions. It badly tarnishes the country image and brings the economic growth to a standstill. Investments are withheld, expansions are indefinitely delayed and financial crises are brewing up. The flashpoint country becomes hostage to the global exploitative forces that take full advantage of the situation to advance their respective interests.

Internally, the acts of terrorism, besides badly mauling the local and foreign investor confidence, hold the foreign buyers at bay who either put the ongoing deals on an indefinite hold or move to other international markets. The frequent travel advisories restrict the movement of foreign buyers compelling the affected exporters to undertake travel to the importers' destination to save the ongoing deals. This essentially increases the cost of doing business for the exporters. Moreover, the violent civic disruptions caused by terrorist activities derail the economy. Sales shrink as people concentrate only on essential goods putting the purchase of luxury or semi-luxury goods on the back burner. Production falls because of shrinkage both in domestic and foreign demands and in effect, economy is subject to a double squeeze.

While global recessionary forces are said to have subsided, economy has started showing improvement. Current account deficit for the first six months of fiscal 2010 has been contained to $1.758 billion against a figure of $7.846 billion for the corresponding period of the previous fiscal. This may be robust, but the improvement owes much to the import side, which has recorded a negative growth of $3.123 billion. The exports during the period under review have recorded a minor decrease of $283 million.

Pakistan's law and order situation is linked with war on terrorism. Major portion of country's security assets remain deployed at that front. This allows the domestic criminal elements much operational leeway to further destabilize the public peace conditions. During recent months, two major developments in US policy on war on terrorism have taken place. They smack of the old stick and carrot policy. The decision to deploy additional 30,000 troops along the Afghan border and the show of will to negotiate with Taliban are the factors that will determine the future of Afghanistan and also that of Pakistan. One hopes the things take a turn for the better and usher into a peaceful and viable economic era for the country. While the outcome of war on terrorism remains a grey area, yet the signs are that the terrorist forces have received a major setback. Their off and on forays into the civilian territories without any set pattern show that they are fighting a war of attrition. Nevertheless, it is too early to rely on such conclusions. It remains the duty of the civilian government to forestall such sporadic terrorist attempts and create an atmosphere of economic peace and tranquility. Only a prolonged period of terror-free civic life will restore the confidence of domestic consumers and investors. Foreign investors might take a bit longer to return to markets as they will take lead from domestic economic performance. Pakistan's major political forces should also show a sense of national cohesion and desist from petty politics for trivial gains. These are not the times for one-upmanship or brinkmanship.