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Post-September 11 scenario

Jan-21 - 27, 2002

Studying Pakistani economy divulge manifold fundamental deficiencies in our economic structure. We may categorize these dearth as, basic economic flaws (policies of SBP towards shaping the economy, inability of Pakistani exports to compete in international potential markets, less than required pace of Pakistani businessman to cash changing business scenarios, our reluctance to explore new markets and stickiness to traditional trade points such as US, Canada, and some of the European countries). Secondly, political economy policy of the country in which we are so badly seized that we may label it as the originator of our vicious circle of poverty, (Huge amounts of debt, political priorities over national cause that jobs like a hammer on the head of the economy every time a policy fails that had captured great amounts out of such perilous -conditional-loans, requirement of huge capital for our borders, performance of government in negotiating national cause at international fronts, the role of governmental agencies. Finally the natural calamities, such as drought 2000 but since we are attempting to what we correct hazardless, Let us make only first two aspects debatable.

It is observed a huge gap in our exports in post September 11 situation. Our exports stuck to a static point, where we lost 25% textile orders in hand. Only in Sialkot, exporters observed 63% downfall in exports, being leather sector hurt hard, and here exporters had to revise down their export projections for 2001-02 from $600 millions to a mere $250 millions. How this occurred, let's poke about,

•The policy of international buyers to safe their supply chain.
•Tardiness of Pakistani govt in bringing the fact before international community that there is economically peace in the country.
•Imposition of war risk premium by insurance companies and increased charges of freight forwarders that directly posted a message towards foreign buyers that Pakistan has become a red-line in map.

Since the situation was self-made, nevertheless if we carefully study, we are encountered with the fact that we have heavily relied on U.S and E.U for our exports 565 of our total exports to these two regions, further our export nature is optional not primal. When U.S buyers found they may be jobless, their may be less earnings available to them, they started saving and at the very first step, they stop buying what they do not need in order to run their daily life. Pakistani tiger exports like leather goods, ready-made garments, sports goods, jeans, carpets etc. were immediately kicked by Americans as they wanted to save for bad times. Might we had sustained sufficiency in agriculture, might we had exported cereals, fisheries, fruits, food stuff and petroleum products, we have had not faced such serious cracks.

Reviewing the performance of governmental agencies that are responsible to be active in such bad times (although they remain passive otherwise), We should admit that SBP has been looking very efficient at media front, it reduced re-finance mark-up rates from 14% to 10% in two consecutive attempts. What SBP done actually that it shared the benefit of appreciation in some economic factors and not made any attempt itself. SBP reduction in its lending rates is due to more than 8.8% appreciation of Pak rupee against dollar, huge capital in-flight both through commercial and political channels and less than expected trade deficit (We have worked out trade deficit as: decline in exports -$1600 M, lower import bill due to decline in oil prices and official grant of Saudi oil company from Saudi Arabia to Pakistan +$700 M, decline in other imports due to slow economic activity at home +$100 M) which has been revised to current level of $600 M. SBP could reap profits and share it with nationals through putting timely the dollar-refinance scheme into action, through which refinance credit is available at 6.25% rather than 10% local lending rates, the same was also announced by Governor State Bank, Ishrat Hussain in a T.V briefing. But interestingly enough there is unawareness even among top level bank officials. Mr. Ali Raza, National Bank's president said, when even we are not informed about this facility, how we can offer it to the general public. In the international scenario of interest rates cuts by developed countries, this is time to reap profits. But the question is that how a common businessman avail this facility which is not even known by the banks. Hence Mr. Governor should be practical otherwise in this aspect.

On the political front, however, there are vital achievements witnessed in negotiating the damage by country's representatives. Capital inflows from USA, UK, and EU have mostly arrived. Alone USA has injected $1 billion relief package. Another vital achievement so far seen is the rescheduling of US-Pak bilateral debt of $3 billion to be paid 40 years from now, plus a 15 years grace period. It means 20 to 30% write-off. Negotiations are also underway for reduction in interest rates. If these are successfully settled, we will save 70 to 80% of $ 3 billions. Pakistani officials set a historical landmark when they successfully won Paris club round. Round results announced by almost 30 countries representatives, assured rescheduling of $12.5 billion multilateral loan as a result of which Pakistan immediate liability was stretched to accumulated 53 years inclusive of 15 year of grace period. Finance Minister Shaukat Aziz said this relief would save $1 billion in first year and in consequent would abandon annual debt servicing amount from present level of $5.5 billions to around $3 billions. There are also hopes for getting more access to North American and Japanese markets, beforehand, access to EU markets has already been achieved.

Apparently these are the vital benefits but unless our govt has a clear plan of action for their utilization we can't overrate them. A perplexing question has always been asked by a common man that where these huge loans are spent. A $38 billion huge debt along with debt servicing of huge amounts over the years must mean a vital development of the economy, but it is still at its very initial stages. All the injections must be immediately spent for reduction of debt, and not in the wasted projects which every govt takes-in then other govt comes with new plans brushing off the previous. Chuck-out from foreign debt is also very essential for economy, because out of annual budget about 43% is to be paid for debt servicing annually. This amounts to about 8% of our GDP that means after every 12 years we are deprived of a full year of our GDP, or in other words it implies that after every 12 years we are a year back due to our debt ridden situation.

We should not be overjoyed with what we are achieving, actually at international front, it is a period of recession, every country is revising its prior September growth projections like USA has revised its growth target from 2.5% to 1.5%, EU from 1.3% to .8% etc. So even if we assume that we will be able to successfully exploit all enhanced market access, we will be at the same level where we are now due to downward economic trends. But practically it is not necessary that we may manage all new markets. Current scenario is demanding that govt and business community working together must put into action what they are claiming for years, that after getting enhanced market access to EU and USA they will be having preeminent upshots.