WORSENING LAW & ORDER SITUATION A THREAT TO EXPORTS
SHAMSUL GHANI (email@example.com)
Dec 7 - 13, 2009
Economy during adverse law and order situation faces a number of problems besides drying up foreign investment that hamper its growth. The escalating terrorism is yet another negative, which threatens not only the economy but also the security of the country.
Circumstances have proved that unlike bad law and order situation, which restricts itself to the national boundaries, the terrorism threat assumes global dimensions badly tarnishing the country image and bringing the economic growth to an indefinite halt.
Investments are withheld, expansions are indefinitely delayed, and financial crises are brewed. The flashpoint country becomes hostage to the global exploitative forces that take full advantage of the situation to advance their respective interests.
The recent escalation in terrorist activities following sustained military focus on Waziristan has sent a fresh wave of terror across the business and investment circles.
Internally, the acts of terrorism, besides badly mauling the local and foreign investors' confidence, hold the foreign buyers at bay who either put the ongoing deals on an indefinite hold or move to other international markets.
The frequent travel advisories restrict the movement of foreign buyers compelling the affected exporters to undertake travel to the importers' destination to save the ongoing deals. This essentially increases the cost of doing business for the exporters. Moreover, the violent civic disruptions caused by terrorist activities derail the economy.
Sales shrink as people concentrate only on essential goods putting the purchase of luxury or semi-luxury goods on the back burner. Production falls because of shrinkage both in domestic and foreign demands with the result that economy is subjected to a double squeeze. The external sector economy, particularly the export side, takes a big dive.
Pakistan's exports went up from $9.1 billion in 2001-02 to $19.2 billion in 2007-08, recording a growth of 111 percent during a period of 6 years. Moreover, the year-on-year trend remained invariably rising. It was in 2008-09 when the exports came down to $17.8 billion, recording a negative growth of 7.3 percent. The reasons were various; dubious transition to democracy followed by political uncertainty, global recession, deteriorating law and order and escalating terrorism.
After 9/11, terrorist activities became a norm for the country but their disruptive effect on economy was not as profound as it became during the last two years. Pakistan's export kept continuously growing until 2007-08, which shows that a booming economy has the force to shrug terrorism. It was in 2008 when the economic downturn and escalation in terrorism set off concurrently putting immense pressure on domestic and external economies.
While global recessionary forces are said to have taken a downturn, our external economy has started showing improvement. Our current account deficit for the first four months of fiscal 2010 has been contained to $1.071 billion against a figure of $6.657 billion for the corresponding period of the previous fiscal. This might sound robust, yet it has very little for us to sing about as the improvement owes much to the import side, which has recorded a negative growth of $3.717 billion.
This fall in imports figure has mostly accounted for the reduction in trade deficit, which has come down from $7.584 billion to $4.469 billion for the four months under reference. The export side growth appears to be in the stagnant mode. The table briefly compares the current trends in external economy.
EXTERNAL ECONOMY CURRENT TRENDS ($ MILLION)
% CHANGE JULY-SEP
% CHANGE Imports 10558 14275 -26.04 7586 10814 -29.85 Exports 6089 6691 -9.00 4492 5215 -13.86 Trade Deficit 4469 7584 -41.07 3094 5599 -44.74 Current A/c Deficit 1071 6657 -83.91 462 4258 -89.15 Home Remittance 3089 2346 31.67 2330 1880 23.94 Foreign Investment 910 1156 -21.28 671 943 -28.84
Although exports have been showing a declining trend, the comparative decline during October 2009 was restricted to 9 percent, against 13.86 per cent the previous month. This means that exports have started to pick up and we might see a growth in the coming months. The mainstay of external economy - home remittances - has been showing "unconditional allegiance".
The Dubai World financial debacle has given rise to fears that remittances from Dubai might shrink during the current fiscal year. Dubai accounts for 12 - 13 percent of total remittance. A 50 percent cut in remittances from Dubai might scale down the entire fiscal estimates of 11-12 billion dollars by 500 million dollars - not a big deal.
Foreign investment too is showing signs of improvement by recording a cut in the size of negative growth.
While the outcome of war on terrorism remains a grey area, the signs are that the terrorist forces have received a decisive setback. Their off and on forays into the civilian territories without any set pattern show that they are fighting a war of attrition. Nevertheless, it is the duty of the civilian government to forestall such sporadic terrorist attempts with full force and authority. Only a prolonged period of terror-free civic life will restore the confidence of domestic consumers and investors. Foreign investors will take a bit longer to return to local markets, as they will take lead from domestic economic environment.
Government should also desist from making false promises to the business and industrial communities. If in its textile policy, it had promised uninterrupted gas supply to the textile sector, it should have made sure to see it happen. Textile sector is the backbone of exports. We cannot afford to feed it with politically motivated promises.