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
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
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
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