All-time high figure

From Shamim Ahmed Rizvi,

Dec 13 - 19, 2004





The growing trade deficit has assumed alarming proportions. According to official figures released by Federal Bureau of Statistics, trade deficit for the first 5 months (July-November 2004) of the current fiscal has swelled to an all-time high figure of $2.511 billion, which is almost 465 percent higher for the same period last year.

Trade deficit was showing growing trend from the very start of current financial year but November has broken all previous records by ending in deficit of over $1.1 billion. During the first four months it had increased to $1.4 billion against the target of $500 million. November 2004 alone has surpassed the deficit targeted for the eight months. The widening trade deficit declining budget surplus and rising inflation during the current financial year are the most worrying factors for the economic managers of the country. Independent economists are questioning the wisdom of Prime Minister cum-Finance Minister decision to decline the last tranche of $262 million IMF concessional loan under the present situation. He was only playing to the gallery, commented one while another alleged that it was only to avoid another IMF monitoring report (tied with the release of the last tranche), which would have pointed out the growing weakness in economy negating government tall claims.

This appears to be the first experience of its kind after the 9/11 incident as the economic situation since then has largely been improving, which has been endorsed even by the most independent economists. There has been a systematic retrieval of economy, which though criticized at the popular level, has helped the country to infuse confidence in local and foreign investors. Foreign exchange reserves, remittances surged while the fiscal and trade deficits largely brought under the control due to healthy exchange rate and better revenue collection. Thus economy presented a healthy picture, which helped market Pakistan in the most competitive international environment.

Only last week the Prime Minister, while saying good by to IMF, claimed Pakistan had achieved economic sovereignty and was working on a comprehensive plan to transfer these benefits to the common man. "Gone are the days when Pakistan was termed a failed state and from being on the lowest tier of IMF's poverty reduction programme has gone into international capital market", he told participants of the 5th Workshop on National Security at the National Defence College.

"Pakistan will still seek money for its mega development projects like dams, but will not compromise its sovereignty," Aziz said amidst a thunderous applause.

"We had to live from tanche to tranche, five years back but now we have become the first country in IMF's history to move from Poverty Reduction Growth Facility in to the international capital market." He said Pakistan has not accepted the last two tranches of the IMF and added, "We must celebrate our successes." He said it was a big challenge for the government to transfer the advantages of this financial impact to the common man and added that owing to government's dynamic growth-oriented policies the growth rate likely to go up from the projected 6.4 percent. Wide ranging structural reforms, prudent macroeconomic policies, financial discipline, and consistency and continuity of policies have transformed Pakistan into a stable and vibrant economy, he added.



During the last four years while the government claimed that its policies had resulted in economic turnaround, the critics termed the international environment in favour of windfall returns for the economy. Now, suddenly the international oil prices, the impact of which has been more severe on the developing countries due to absence of any depth in their economies. If the oil prices in the international market maintain the present trend, the government may loose by January 2005 about half of its about 65/70 billion rupees revenues earned through petroleum development surcharge.

In normal circumstances, the government would not have hesitated to cover this loss by passing on the addition of oil prices hike by increasing the sale prices of petrol and petroleum products and raising the power tariff. The government does not feel it expedient and right so, to resort to this normal practice of meeting revenue shortfall because of the overcharged political atmosphere in the country.

Pakistan's all-time soaring deficit has triggered fresh anxieties over the country's economic outlook. Mr. Shaukat Aziz who has overseen the country's financial machinery for almost 5 years before being elevated to the Prime Minister's start this indeed faces a big challenge in tackling the fall out of this soaring deficit which may end up to about $5 billion by the close of the year.

Though the exports also witnessed an increase of 4.15 percent, and stood at $5.370 billion as against $4.835 billion of the same period last year, the rise appears quite negligible when compared with 464.80 percent increase in imports. The phenomenal increase in imports is attributed primarily to imports of metals, petroleum products, machinery, agriculture and other chemical groups and food items. A cursory look at the import, export figures provides an idea that increase in imports has failed to be translated into higher exports. In a developing country like Pakistan, rising level of imports cannot be rejected if they help in raising the industrial production and exports as it takes the economy to a higher level of equilibrium, something every country cherishes for economic prosperity and higher employment level. But this does not appear to be the case this time. Admittedly there is a lag between imports and exports figures, but the trend is visible. Furthermore, since the country like Pakistan does not possess enough economic depth, such a difference between imports and exports can hardly be sustainable.

The government has been avoiding to take the tough decisions, which though desirable can hardly be sustainable, in the long run. It is primarily the surging oil prices, which pose the most pressing challenge for the country. For any upward revision of oil prices may be detrimental for the economy, the procrastination in taking the right decision does not help either. Mr. Shaukat Aziz has been quite ardent supporter of linking the oil prices to the global prices when he was finance minister, but he has got to see the economy through a politician's eye. It appears to be tight rope walking where you need to balance on every step without losing the determination to cross over.