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The possibility of debt write offs should also be explored with bilateral donors.

Oct 15 - 21, 2001

A high powered delegation headed by Finance Minister, Shaukat Aziz, embarked on Sunday night on what can rightly be seen as on important mission to Washington. Chances of mission's success are bright and Pakistan's economy may get another shot in the arm when the $ 2.5 billion poverty reduction and growth facility (PRGF) is approved by the International Monetary Fund (IMF) likely to be supplemented later by another 1.5 billion by World Bank and Asian Development Bank.

As prospects for the availability of PRGF have been under discussion for quite some time, the basic ground seems to have been already prepared to carry forward these negotiations to final approval of the facility which would help in bolstering the economy for the next 3 years period. Plans had been prepared to overcome the problem as part of General Pervez Musharraf's programme of economic revival. The current year's budget too lays emphasis on achieving a goal which the government had set for itself since day one of its inception. It had met reasonable success in its desire to put the economy back on the rails. The task was difficult, but not impossible. The decline in the economy, noticed for the past couple of years because of mismanagement by successive administrations, had been arrested. But then came the unforeseen crisis in the wake of history's horrendous terrorist action of Sept 11. The world economy found itself in the midst of a turmoil. Banks had to bear a major brunt through rate cuts and similar other measures.

Pakistan, not only could insulate itself from the repercussions of the spin-off, it, in fact, had to take a heavy toll because of being a frontline state of a war not of its choosing. Quite naturally its international trade, exports especially, came under enormous pressure. The international community did respond by rescheduling its debts, but the concessions were not commensurate with the kind of sacrifices Islamabad was asked, or forced to offer for the sake of a better and more peaceful world, free from terrorism. Port and airport activities had almost halved, affecting the government's revenue generating efforts. The target of over Rs.400 billion set for the current fiscal is bound to be much lower than is being generally anticipated. Pakistan's economic woes are mounting. A crisis like situation has already developed, economic activity has slowed down, unemployment is on the rise. Inflation is gradually soaring. Export consignments of the country have piled up at Karachi and other airports, and in warehouses, handling orders from abroad for sports goods, surgical items, cutlery etc. in the Punjab centre of Sialkot, Gujranwala, Wazirabad eta. Travel and tourism trade has taken a major blow. Hoteliers in Karachi complained that their occupancy has fallen by 60 per cent. Not many customers is a common complaint from management of leading hotels. The effect of the war cries have scared buyers of daily items also. Shopping malls have. been reporting a constant decline of customers. A wait and see attitude has been adopted per force by the business community.

At least ten foreign carriers, including those from Europe, and South East Asia, have already closed their Pakistan operations, while others, mainly from UAE, Saudi Arabia, Bahrain, and Kuwait, have cut down their flights to the country by 50 per cent, according to a statement from the deputy director general of civil aviation authority, Air Marshal Rashid Sethi. These airlines naturally seem concerned by the outbreak of war in the region, and consider the Pakistani airspace unsafe because of the American air strikes on Afghanistan. He was quoted as telling a press conference in Karachi that as for the authority was loosing about Rs. 33 million (over half a million US dollars) per week.

Besides likely shortfall in export earnings, revenue and revenues generation, defence expenditure is likely to increase in the present circumstances when the armed forces will be on the high alert. The USA, Western countries seem to share our concerns and appears ready to help us financially. Sanctions have been lifted and main hurdles in extending economic and defence assistance to Pakistan have already been removed.

One of the compelling problems, which needs to be addressed, is the huge debt burden, any further addition to debt or rescheduling of the old ones can only postpone the problem but will not be able to solve it. A two-pronged strategy in this regard could be considered.

The contraction of more loans should be avoided as far as possible. Those, who want to help the economy, should preferably offer grants and not only loans. The possibility of debt write offs should also be explored with bilateral donors. Major donors like the USA, Japan, Britain etc should write off their loans. A moratorium of ten year should be allowed on payment of rest of the loans without adding up interest for this period. This is the only way to compensate Pakistan for the losses it is likely to suffer in this war against terrorism.