1- U.S. CRISIS AND PAKISTAN
2- TOP TEN
3- CROP INSURANCE
4- ITCN AND FIRST IT PARK
5- COMPETITIVE MARKETS MAY GO FOR DEMUTUALIZATION
6. ISLAMIC BANKERS

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U.S. CRISIS AND PAKISTAN

 

 

By ALI FARHAN CHAUDHRY
Aug 19 - 25, 2002

The globalization has shrunk the world in order to benefit the economies. Besides the advantages it has certain disadvantages. One crucial disadvantage is that the decisions made on one pole of the world immediately affect the people living on the other pole e.g., crisis in one economy immediately translate into other economies as recently witnessed by US crisis after September 11, 01. Persistent sluggish economic growth of US will not purely be a U.S. issue and it will have a negative impact for different economic groups around the world. The major economic blocks e.g. Japan and Euro-zone's growth prospects were dampened by the weak US economy. Being the part of this global village, Pakistan is also suffering from this new scenario and the intensity of situation became immense when it joined the US in a war against terrorism.

Since then Pakistan is facing law and order disturbance. Meanwhile India showed its evil nature and deployed armed forces along the border, especially in Kashmir, making some unjustified excuses. Recent tension on borders heightened after the incident of December 13. Tension between two nuclear powers escalated and touched red alert point but later on diffused when the international community interfered, realizing the seriousness of the matter. The immediate and the most significant affect was the reduction in the foreign investment. Foreign investors pulled their investment out for better returns at low risks.

Persistent fall in investors' confidence in the US economy and assets markets are also translating in Pakistan. Earlier in July, when corporate accounting scandals were putting U.S. share prices under tremendous pressure. The demand for consumer goods also fell in US that alarmed Pakistani exporters. Overnight US consumer confidence tumbled to record low as witnessed by two different research institutions. The University of Michigan's US consumer sentiment index in July was revised to 88.1, well above market expectations but still lodged at an eight-month low. US consumer confidence index fell to 97.1 in July from 106.3 in June, according to the Conference Board, a private research group. The reading was much lower than the 101.9 expected by economists.

Persistent lingering local demand in the United States also dampened the manufacturing activity in the United States witnessed by the softer than expected manufacturing figures. Overnight the US Institute for Supply and Manufacturing (ISM) index, fell to 50.5 in July from 56.2 in June, far worsen than expectations and slightly above 50, a threshold between growth and contraction.

The US is the largest export market for Asian countries including Pakistan and therefore a fall in U.S. domestic demand could have a large impact. Currently, Pakistan is exporting more than 26 per cent of its total exports to the Unites States and if the consumer confidence in US is falling, it means that demand for the Pakistani goods will also fall because the US is making efforts to narrow down its trade deficit that is the biggest on the earth as recently was recorded $37.64 billion in May.

Another area, which is directly affecting Pakistan, is employee layoffs in the US. Labour Department said the number of new jobs created outside the farm sector rose just 6,000 in July in US, far less than the 69,000 expected by economists. Meanwhile, US jobless rate was recorded 5.9 per cent in June. US economic growth also suffered after September 11 attacks. The US economy grew at an annualized 1.1 per cent in the April through June quarter, a slower pace than the 2.2 per cent forecast on average by economists. First-quarter GDP, previously reported to have advanced at a blistering 6.1 per cent pace, was revised down to 5 per cent as part of the government's benchmark revisions. The revisions also showed that the economy contracted for three quarters in a row in 2001, leaving growth at just 0.3 per cent that year rather than the previously estimated 1.2 per cent.

Pakistan, being part of the global economy, had to face tense global environment throughout 2001-02. Pakistan's growth performance during the fiscal year 2001-02 was also adversely affected. Pakistan's economy has been hurt by a fall in exports since the start of the air assault on Afghanistan. Although, Pakistan has showed current account surplus after decades but actually it was on the cost of low imports. The imports fell due to persistent slow down in export sector' activity as the exporters, in real term are the main importers and use imported goods in their finished goods. Many other significant factors associated with the surplus are Paris Club rescheduling, Poverty Reduction and Growth Facility (PRGF) program with IMF and the Structural Adjustment Credit from the World Bank.

Pakistan was well supported by persistent rise in foreign exchange reserves to $7 billions. Overnight remittances increased due to steps taken by the State Bank of Pakistan (SBP) to ensure the protection of foreign currency accounts. Remittances also increased as the Central Bank of Dubai imposed restrictions to trace the flow of funds and SBP purchased dollars from the local as well as from abroad.

Pakistan now needs to explore new markets on the earth and should concentrate on Euro-zone having 300 million population. As their living standards are improving so is their buying power. Pakistani exporters should focus on this new market to earn more on value added products. Secondly, we need to establish stable political and better law and order system to encourage foreign investors to bring in capital along with new technology and explore opportunities over here.