Pakistan Day, the historic occasion which had
provided the basis and spirit for creation of this country was observed
under a pall of gloom hanging all over the globe due to Iraq war.
"War, in Martin Luther's words, is the greatest
plague that can afflict humanity; it destroys religion, it destroys
states, it destroys families. Any scourge is preferable to it".
It is not only unfortunate but tragic that despite
strong opposition from all over the world and by the United Nations, the
US violated the UN Charter for its unilateral decision by taking
military action against Iraq.
The government of Pakistan while condemning the
military action has described the US-threatened war against Iraq as
unjustified. Foreign Minister Khurshid Mahmud Kasuri while addressing
the House said that there was no justification for this war.
Rejecting the US appeal to severe diplomatic ties
with Iraq, various countries including Pakistan have said that they are
not going to close their embassies in Iraq on the will of the US.
Besides Pakistan, similar decision has been taken by France, Germany,
Russia, Canada, Aljeria and Malaysia. The postponement of Prime Minister
Zafarullah Jamali's visit to the United States, UK and France is a
natural reaction as it may not help politically in any case at this
The immediate fall out of the Iraq War is going to
hit the oil prices due to obvious disruption in oil supplies from Iraq
being the major oil producer. The earlier estimates of $3 billion oil
imports are feared to escalate up to $4 billion due to increase in oil
prices. This would be an additional burden on the economy which had
started to take turn around due to better performance and adherence to
the economic reforms introduced by the present government. The increase
in freight charges and imposition of war risk surcharge by the insurance
companies is yet another factor which may adversely affect the pace
growth both in imports and exports from Pakistan. As an immediate effect
of war, the buying and selling of the essential items in the domestic
markets have virtually come to a halt, as the major players like to sit
on the fence in an uncertain situation. Hence there was an status quo
position in the market till right of this report. The situation may have
a multiplier effect on general prices if the US-led war prolongs.
The economy during the year performed exceedingly
well as all financial targets were well not only within reach but may go
beyond the benchmark in almost all directions.
The unprecedented growth in foreign exchange reserves
is set to hit $11 billion mark against the target of $10 billion at the
end of the financial year. The home remittances have also registered a
record growth and are likely to reach the level of $4 billion during the
year. The strong economic fundamentals would certainly help the economic
managers to formulate development and growthoriented budget for the next
year which may provide the much sought after relief to the common man.
As a result of good economic performance and improved financial health
of the economy, more funds are expected to be available for health,
education and agriculture in the forthcoming budget.
Pakistan was spending about 75 per cent of its
resources on debt servicing, which leaves no space for development
project or other public welfare plans. As a result of fiscal discipline
better decisions, economic reforms and consistency in policies, the debt
servicing are likely to come down from 75 per cent to 25-30 per cent
during next two years which may be described as the most heartening
economic achievement of the national economy.
According to State Bank of Pakistan, the ratio of
debt servicing to foreign exchange earnings to decline from 75 percent
2000-2001 to 25-30 percent range in 2004-2005 and assumes that the high
cost of National Savings Scheme will continue to be brought in line,
allowing the government to run primary surpluses in its budget, as in
the last four years when nominal GDP growth rate exceeded the implicit
rate on public debts.
The cotton and textile sector which is the spearhead
of the national economy has achieved an export growth of around 3.5 per
cent during the year and is likely to up well beyond $6 billion at the
end of the financial year.
Anjum Saleem newly elected chairman of All Pakistan
Textile Mills Association (APTMA) feels that the consistency in the
economic policies have helped to achieve better results. He said that
during one and half year, the textile sector made an investment of over
$1.5 billion for expansion of the existing facilities and on BMR. As a
result of these investments, the production capacity of the sector
improved remarkably. The growth in the textile sector is reflected in
the increase of consumption of raw material including cotton i.e. from 9
million bales to over 12.5 million bales this year.
Although the strong industrial base in the textile
sector has started foreign investment in this sector, yet the local
industry has the potential to meet all the challenges in the world
market. The textile sector is likely to continue as the leading player
in the national economy in the years to come and may contribute
handsomely, if level playing field is provided by the people at the helm
of affairs. The only irritant disturbing the minds in the textile sector
is said to be undue production to the polyester sector by imposing heavy
duty on import of polyester fibre and slow compliance of the refunds
which creates liquidity problems for the industry.
LARGE SCALE MANUFACTURING
The noticeable growth in large-scale manufacturing,
increased agriculture products following a pick-up in both domestic
demand and export activity, has brightened the prospects of the national
The large-scale manufacturing growth has tripled,
agriculture-sector was expecting to meet the target of 2.2 percent and
the six months exports increased by 16.6 per cent.
Contrary to the earlier situation, it was encouraging
that the private sector credit demand from banks has jumped very
Accordingly, the private sector credit reached Rs76.8
billion by end-December 2002. The increase probably reflects both,
reduced political uncertainty and a sharp cut in domestic interest
Considerably low rates of lending, large liquidity
with the banking system, fierce competition among the banks and lower
remuneration on government securities were pushing the financial
institutions towards new avenues such as, consumer, mortgage, personal
loans, SME and agriculture financing and targeting new customers,
particularly in the middle class.
This was likely to boost domestic demand, while
continued decline in export finance rate, low cost dollar loans to the
exporters and stable exchange rate would help the export sector of the
However, country has still a long way to go before
the incidence of poverty is significantly reduced, employment generation
takes place on a wide scale and the standard of living of the common man
takes a turn for the better. But the route to achieve these objectives
is not through ad hoc short-term temporary palliatives, but by adhering
to the course of reforms, good governance, political stability and hard
work by the nation.
Another bright spot for the economy appears to be the
good fiscal turnout, with the first half of the financial year deficit
held to 1.6 per cent of the GDP, comfortably within the annual target of
4 per cent of the GDP, comfortably within the annual target of 4 per
cent of the GDP.
However, a quarterly break-up of the consolidated
federal and provincial fiscal performance depicts a mixed result.
The revenue picture is quite exceptional, with
sustained strong growth in tax revenues and non-tax revenues during the
On the other hand, expenditures too have accelerated,
with the 9.6 percent year-on-year basis increase being concentrated in
current spending, rather than on development. It was worth noting that
the spurt in consolidated expenditures was because of a Rs35.3 billion
rise in provincial spending, the federal government, encouragingly, has
maintained fiscal discipline. Improvements in the fiscal deficit
generated through low development spending are not desirable for he
economy in the long run.
In any case, the fall in the fiscal deficit and the
relatively higher availability of non-bank credit allowed the government
to significantly reduce it borrowings from the banking system.
Specifically, the government's need for rupee borrowings declined
sharply, as approximately 73.6 percent of the fiscal deficit during
first half of the year funded by external inflows. As a result, the
government 's domestic funding requirement for the period was a mere
Pakistan has successfully completed its
macro-economic stabilization program initiated in December 1999, but the
county has still a long way to go before the incidence of poverty is
significantly reduced, employment generation takes place on a wide scale
and the standard of living of the common man takes a turn for the
Dr. Ishrat Hussain, governor SBP has submitted to the
Senate that the outcomes for the current fiscal year will, by and large
determine whether Pakistan is indeed moving towards a 6 per cent GDP
growth trajectory targeted for 2003, onwards or not. If the growth rate
of 4.5 per cent is attained this year and the Iraq war or any other
shock- domestic, regional or international does not cause a major
disruption, it is quite likely that Pakistan would be able to strike GDP
growth of five and 5.5 per cent during next financial and six per cent
However, the transition to growth requires political
stability, good governance and sticking the course of reform instead of
going to short-term palliatives. Downslide risks of worsening
geopolitical situation, domestic violence, stresses in the working of
Parliament are affecting investment decisions and could impact the
Public sector organizations like WAPDA and KESC
continue to pose a threat to government's fiscal deficit reduction
objectives. The annual losses in these two organizations alone are
running in billions of rupees on account of power theft which terms as
line losses. If this trend of losses which is said mainly due to
corruption within these organization was not effectively checked, it
could affect the public sector development program of the government. It
is unfortunate, that instead weeding the corrupts within these
organizations, the easy way out is to conduct raids on the consumers and
levy heavy penalties if an irregularity. Why that irregularity was
allowed or overlooked by the staff responsible. Responsible staff of
these two organizations should also be penalized under whose
jurisdiction the irregularities were found. As there was a rule that
charity should begin at home.
The increase in Public Sector Development Program (PSDP)
expenditure has, however, become feasible because of the fiscal space
available due to reduced burden on debt servicing and growth in tax
Low rates of lending, large liquidity with the
banking system, fierce competition among banks and lower remuneration on
government securities, are pushing the financial institutions towards
The macro-economic stability which has come about due
to a combination reforms (financial sector reforms, tax reforms along
with agricultural produce prices to international prices), sound but
tough policy decisions such as removal of subsidies, deregulation of
prices, free float exchange rate, improved economic governance, reduced
leakage in public expenditure and good luck remittances began to flow
through banking channels and capital flight was partially reversed,
contributing to the outcome. It is clear that the reforms process at
this point is quite fragile and needs to be nurtured by the new
government to get the confidence of the investors who are presently
sitting on the fence.
The flow of foreign direct investment during the
period July 2002-February 2003 amounted to $630.07 million, showing an
increase by 148 percent as compared to the corresponding period of last
year which was $245.5 million. During February 2002, the inflow of FDI
was $37 million. Among the areas which attracted the foreign investment,
the prominent sectors were financial business (211 million, chemical 80
million, transport 58 million, trade 30 million, power 26 million, trade
30 million, power 26 million, textile 21 million and communication 20
The percentage share of major sectors in FDI inflows
were financial business 34 percent, oil and gas 20 per cent, chemical 13
per cent, transport 9 per cent, trade 5 per cent, power 4 per cent and
other sectors 15 per cent.
UK took the lead during this period by investing
$196.9 million and USA as at second position with FDI of $162.5 million,
UAE being third $110 million. The share of major investing countries in
FDI comes to UK 31 per cent, USA 26 per cent, UAE 17 per cent, Saudi
Arabia 5 per cent, Japan 2 percent and 19 percent from other countries.
The visits of foreign business delegations to
Pakistan also increased during the last three months. Investors
delegations from Europe, Bahrain, China, Singapore and Saudi Arabia
visited Pakistan to explore potential and to have a meaningful
interaction with the private sector. The Singaporean investment and
trade delegation Investment and Trade delegation during the visit in
January this year indicated interest in IT, oil & gas, education and
infrastructure projects besides import of Pakistan's products.
The sizeable increase in the flow of FDI is an
indicator that investors perception about Pakistan is improving. The
Board of Investment has initiated a number of steps to eradicate
irritants and to restore confidence of investors. A conference of OIC
countries on Investment & Privatization is also scheduled this year
in Islamabad in collaboration with E-Commerce Gateway Singapore and
Islamic Chamber of Commerce and Industry. According to an estimate the
FDI inflows during the whole financial year is expected to touch one
billion dollar mark by the end of June this year.
The government has earned Rs2.8 billion by
privatizing various public entities through stock market in a short
period last two months.
During the last few weeks, the government has
achieved much progress in privatization that even was not made by some
of the previous governments in their entire tenures.
Encouraged with the results so far achieved, the
government now seems determined to place Pakistan State Oil (PSO) on the
bidding which would be held on April 26, afterwards, Habib Bank would
also be taken for privatization in two to four months time.
Government, in accordance to its investment policy
has decided to reform the Board of Investment. Accordingly, the Chief
Ministers of all the four provinces and leading businessmen would also
be brought in the Board.
Continued huge inflow of remittances touched a record
increase of over 105 percent in the first eight months of the current
During the year from July 2002 to February 2003 home
remittances amounted to $2.874 billion, against $1.399 billion during
the same period of last year which, is an increase of 105.34 per cent.
The amount included cash flows, encashment of FEBC's,
Haj remittances and remittances from Iraq-Kuwait war affectees.
Out of the total remittances of $2.874 billion
received in the country during July 2002 to February 2003, workers
remittances contributed $2.745 billion as against $1.317 billion dollars
during the corresponding period last year showing an increase of 109.05
The total amount remitted in February 2002 was
$342.77 million as compared to $233.85 million in February 2002 posting
an increase of 46.58 per cent. The high-speed remittances have already
pushed the country's total foreign exchange reserves to over $10 billion
which was the target set by the government for the year 2002-2003 but
was achieved in eight months.
The ministry of finance believes that the total
remittances by the end of the current fiscal would be over $4.1 billion.
It encourages analysts to say that Pakistan might touch reserves of
about 11 billion by the end of the current fiscal year. Forex dealers,
however, were found first that the dollar would continue to shed its
weight against the rupee and the State Bank from the importers and
others who are not benefiting from the current US dollar rate against
Pak rupee. They argue that the current dollar-rupee parity is not
transparent, which hurts the interest of a large business sector in
Pakistan Day is celebrated by the nation every year
on March 23 to recall the memorable day of March 23, 1940 when the
Muslims of the sub-continent had reached a consensus for creating a
separate homeland where people could live in accordance with their
religious, political, social and economic will. More than half a century
has gone but those dreams have yet to come true. It is strange that
despite passing through the most difficult times in terms of economic
conditions, those who claim to be the representatives of the people have
not taken the lesson. Their main interest is to serve the party interest
they belong instead of talking about the issues confronting the poor,
they are consuming their time and energies for their party interest.
This is the time that nation should draw the line for national
priorities which should be treated above all interests. The need of the
hour is to make a strong Pakistan in all respect so that no power on
earth could cast an evil eye on this land. This target can be achieved
only when the people of this country get united by shunning all
political, regional and sectarian and ethnic differences because the
people are the real wealth of this country. Those who have any sort of
authority should learn to respect the people especially the younger
generation — the future of this — instead of humiliating them on the
roads just to extort money. Humiliation, maltreatment and highhandedness
and bribe under the cover of authority never help building up the nation
instead unleash feelings of hatred for the system, law and even for the