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For the first time in the history of Pakistan, foreign exchange reserves reached a high figure of $5 billion

From SHAMIM AHMED RIZVI
Islamabad
Feb 25 - Mar 10, 2002

The Finance Minister, Mr. Shaukat Aziz is highly optimistic about a turn around in country's economy by next year. Talking informally to the newsmen in Islamabad he claimed that the country will achieve economic growth of 3.3 to 3.5 per cent in the current financial year against 2.6 per cent last year.

Promising record relief to the common men and salaried class in the coming budget he sounded confident when he said that the current three year long Poverty Reduction and Growth Facility (PRGF) extended by the International Monitary Fund (IMF) may be the last foreign lending to Pakistan as the country has improved its economy considerably. By the year 2003-2004 when the present PRGF programme terminates we will be in a position to run the future programme without any foreign loan. The Finance Minister claimed that there has been absolutely no increase in the debt burden of the country since 1999 when the present government took over. It was $38 billion then and it is same today. "It is a new chapter in the economic history of the country," he claimed.

"We succeeded in reducing the current account deficit and fiscal deficit. Current account deficit is 2 per cent while fiscal deficit is 5.5 per cent of the GDP", he said adding that, on an average the current account deficit has been about 5 per cent and the fiscal deficit about 7 per cent of the GDP during the last ten years.

Debt rescheduling and write off of the debt are good signs and it will reduce the debt time, the Board of Investment is working hard to attract the foreign investors. The Foreign Direct Investment has increased as compared to the previous year, the Finance Minister said adding that foreign remittances were increasing and the EXIM, OPIC and some Japanese investors have shown interest in investment. "With the increasing tension in the region the flow of investment got affected. But now we have gained the confidence of the investors and flow of investment has increased," he added.

Smuggling had resulted in huge loss to the Pakistan economy, mainly due to misuse of Afghan transit trade facility. "We have decided to overcome this menace. We will raise the issue with the new Afghan government and put vigilance on the borders and decrease the duty of such items," he said.

Talking on privatization policies of the government, the Finance Minister said that after September 11, the privatization process was affected but it has gained momentum now. "We will soon privatize the UBL, PSO, PTCL, KESC and other institutions," he added.

"Next budget will be people friendly completely tax free providing maximum relief to the masses. More jobs would be created to control unemployment by increasing the allocation for education, health, poverty reduction and social action programmes. Special stress in the new budget will be laid on the jobs creating programmes, Shaukat Aziz said adding allocations in these sectors will be enhanced.

The Minister said educational standards would be enhanced in order to produce a good lot of well educated youth, which could lead the country towards new heights of development and prosperity. We will streamline the present infrastructure of the hospitals in order to provide better health facilities to the masses, besides construction of new hospitals," he added.

According to independent economists there is lot of substance in what the Finance Minister has claimed. All economic indicators lead to the conclusion that a turn around in economic is well insight. As a reward for Islamabad's backing for the "war on terror", Pakistan is expecting a multi-billion-dollar inflow of aid and grants.

"Pakistan will receive 1.7 billion dollars within two years and it already has received 673 million dollars from the United States," 350 million dollars was expected from Japan and 300 million dollars from Britain and the European Union.

US President George W. Bush pledged to write-off one billion dollars of Pakistan's 2.8 billion dollar US debt during President Pervez Musharraf's visit to Washington last month. Pakistan may enjoy further write-offs of loans from Britain, Canada, Italy, Germany and the United States. The western countries had already written off another 500 million dollars of debt. The United States has since September 11 promised Pakistan an aid package worth more than one billion dollars, 600 million dollars of which has already been delivered. Pakistan is also to begin charging the United States about 60 million dollars a month for logistical support it has provided for US forces in the war in Afghanistan.

The United States was considering enhancing market access for Pakistani textile exports but Islamabad was pushing for better trade terms. "We could not get the desired commercial benefits from the US but negotiations (with the US) would continue to settle (subsidised) tariff, quotas and shipment issues," a source in the ministry said.

For the first time in the history of Pakistan, foreign exchange reserves reached a high figure of $5 billion, enough for six months of imports, as a result of a continued flow from Pakistanis living abroad and financial aid from multilateral donors. The reserves reached $5.002 billion for the week ending February 16 as compared to $4.937 billion of the previous weekend. Reserves held by the State Bank of Pakistan amounted to $3.269 billion ($3.194 billion the previous week) while reserves with the commercial banks totalled $1.733 billion ($1.743 billion in the previous week).

Forex reserves are likely to reach $6 billion by June 30 this year, when the IMF is expected to release the second $110 million instalment of its Poverty Reduction and Growth Facility (PRGF) programme. Moreover, the Asian Development Bank and the World Bank would also release funds, and expectations are higher that remittance from overseas Pakistanis will reach $1.9 billion by June 30, from $1.1 billion of the previous fiscal year.

According to an analyst, the flow of foreign exchange has improved since September 11 and the country has received assistance from the International Monetary Fund, Asian Development Bank and World Bank. The steady inflow of dollars from expatriates, from donor agencies and from rescheduling of debt helped the country's foreign exchange reserves to finally cross the $5 billion mark. The rupee has strengthened steadily after September 11 and, in the open market, it improved from Rs. 67.50 to Rs. 59.45 to a dollar, and in the inter-bank market from 64 to 60.15 to a dollar.

Workers' remittances registered a tremendous growth in the seven months up to January 31, this year, which comfortably crossed the $1 billion level of the previous fiscal year (2000-2001).

According to a report prepared by the government's Board of Investment (BoI), the chances of Pakistan getting greater foreign investment this year are better than those of the previous year. Foreign Direct Investment (FDI) for the last year has been mentioned at 322 million dollars, while the figure for the first six months of the current year is 205 million dollars. The forecast for the entire fiscal is about $500 million.

In view of all these developments the optimism expressed about the tax free budget coming with lot of relief to common men and salaried class seems justified. "We are looking forward to revise the salary packages of the government employees to give them more relief, Shaukat Aziz said adding that in the phase I of the salary increase in the current fiscal year 30 per cent increase was given. In the phase II for next year budget about 15 per cent increase will be given to them. It will provide a relief to the government employees on one hand while on the other it will help in arresting the inflation." He expressed hope that incentives would be given to the private sector enterprises in order to win the confidence of this important sector in the investment in different sectors. In current budget tax duties were decreased and government is looking forward to further decrease it in next budget.