FIRST SIX MONTH TRADE IMBALANCE EXPANDS BY 27 PER CENT
SHAMIM AHMED RIZVI
Feb 18 - 24, 2008
According to independent economist and analyst the economy of the country has received serious jolts during the current financial year and it will take long to put it back on the tracks. According to some the economy of the country has gone out of control and new elected government expected to take over next month will be facing a daunting task of correcting economic mismanagement.
The economic data the first six months of this fiscal shows that the trade imbalance has expanded 27 per cent to above $8 billion from the last year and the core inflation has gone up to more than eight per cent. Food inflation is running in the double digits, reaching above 14 percent in October. The rupee has weakened to its 2002 low and foreign exchange reserves depleted to be low $15 billion from above $16 million in October because of the rising global crude market.
In order to finance its budget, the government has resorted to heavy borrowing of Rs 237 billion, crossing its ceiling for the year and fuelling inflation, which is feared to rise to 8.5 per cent against the target of 6.5 per cent for the year. Foreign inflows of money of have dipped due to the global financial crunch on the back of sub-prime crisis in the United States and domestic political situation.
The central bank has warned the government to rectify the fiscal imbalances, stop borrowing for financing its budget and retire its debt to address the risks to the economy. The central bank and international investment and fund managers have already cut their growth outlook for Pakistan below seven per cent.
The critics of the government's growth policy say the genesis of the current slowdown lies in what they call flawed economic policies being pursued for the last eight years. "The government failed to take advantage of the fiscal space 9/11 had afforded it by the huge foreign inflows of money in the form of workers" remittances, which have gone up to $6 billion a year, foreign investment, which peaked to above $6 billion in 2007, debt rescheduling, and write-offs by the Paris Club. Instead of investing in export-oriented industry and agriculture, the government encouraged import-based consumerism and the services sector. That is not sustainable growth. Hence we have a wide external account gap, high inflation, decelerating industrial output and exports, failed crops and a slowing economy today," says Sartaj Aziz, a former finance minister in Nawaz Sharif's last government.
The country has witnessed the worst power crisis during this winter badly affecting the production side of Economy. Factories are still running on two shift bases instead of normal three this has added to unemployment the value of Pakistani rupee has hit the lowest level since Sept 2001. Net foreign investment has declined by about 32 percent as compared to last year. It came down to $ 2.16 billion during the first six months as against $3.18 billion during the same period last year.
The recent nationwide wheat shortage and unrestrained spike in the prices of flour and other essential food items has already brought hard times for an overwhelming majority of the people. The slowdown in growth may not impact hugely on the economic wellbeing of the majority of the people in the short-term. But the wheat flour shortages and the hiking prices of other foods are said by experts to have already pushed a large number of people below the poverty line.
Pakistan's external debt burden has gone up to nearly $40bn from about $33bn in the last seven years. A whopping additional load of $7bn has been added since President Pervez Musharraf came on the scene. In this period, the country has received a record $12bn in overt aid, over $6bn in privatization proceeds, including substantial foreign direct investment, and annual remittances flows of $4.5bn on an average. Over and above this, it has also been blessed with a relief of $1.6bn in loan write-offs by foreign governments in the last eight years and the rescheduling of Paris Club debts that has provided an additional relief of $1.2 to $1.5bn annually in terms of debt services payments. Meanwhile, Pakistan has become a large borrower of the World Bank and the Asian Development bank. So, 90 per cent of Pakistan's borrowings continue to be official, which makes it beholden to foreign governments particularly the US and the multilateral aid agencies under Washington's influence. Direct assistance from the US-both economic and military ñ is said to have reached levels that make Pakistan the third largest US aid recipient after Israel and Egypt.
PPP central leader and former federal finance minister Syed Navid Qamar has bitterly criticized the economic policies of 8 year rule of President Musharraf and apprehended that this regime was leaving behind the legacy of a bankrupt economy.
Addressing a crowded press conference PPP leader stated the government was passing on the legacy of high fiscal deficit, high unemployment and inflation and he feared that the next government might find it difficult to pay the salaries of its employees let alone carry out any development policies for the future.
Referring to the monetary policy announced by the governor State Bank, former federal finance minister said it has noted that growth in economy was being retarded as the result of the economic policies of economic wizards of Musharraf regime, including in particular, former prime minister Shaukat Aziz.
The other ills of economy as the result of the economic policies of preset regime, as enlisted by Syed Navid Qamar, are: The government borrowings have far exceeded the targets. The budgeted at 1.7 percent of GDP has crossed 2.5 percent and is still rising. This is further crowding out the private sector borrowings:
(a) The government has proposed a deep cut of Rs 70 billion in the PSDP. This will effect the development, programs, retard employment generation and add to poverty. There is no corresponding cut on the non-development side;
(b) Government is deferring the payments of oil marketing companies to an amount exceeding Rs 50 billion which would further compound the borrowing targets;
(c) The laying of the blame on the two days of riots following shahdat of Benazir Bhutto is a bogey because the compensation has not as yet started even. As such, question is that where from the amount required for this purpose would be obtained. Will it further not beef up its borrowings?
(d) The independent experts have already questioned the employment figures of the government;
(e) Inconsistent policy and failure to remove bottlenecks have been primarily responsible for increasing inflation. Flour, sugar and now the edible oil is a direct result of pampering the monopolistic lobbies supporting the present government.
An independent analyst, while speaking at a seminar on worrisome Economic trends in Islamabad last week remarked that the nation was paying for flawed economic polices of former Prime Minister Shaukat Aziz with special focus on consumerism. The consumerism promoted by the former Prime Minister has resulted in higher impacts and higher oil consumption requiring ever greater expenditure of foreign exchange; he said adding Someday Islamabad will have to foot the bills that are now maturing on what Shaukat Aziz has done. His greatest "achievement" of a negative kind is promotion of consumerism through bank credit. It has imperiled both banks and borrowers, while burdening the country with excessive requirement of foreign exchange because cars, after all, are not manufactured here; they are only assembled; actual local production of items is relatively fewer. The biggest bill will come in the shape of the possibility that should be dreaded: Pakistan may have to go to IMF hat in hand for bailout because no country or big bank refuses to lend - for more consumption. No country can go on incurring current account deficits of the kind that Pakistan is incurring. Soon debt - servicing looks likely to cancel out the benefits of home remittances altogether.