"The regime ought to consider the fact that with slower growth in industryand weak global demand conditions, projected import growth will stillresult in a large trade deficit. Despite possible reduced oil consumption,as a result of scrapping domestic subsidies, the oil import bill willremain bloated. The present power shortages are a result of chronic underinvestment in new generation capacity, high operational inefficiencies dueto the lack of expansion of the power transmission and distributioninfrastructure, and delayed institutional reforms."
By Munawar Iqbal
The new democratic set up has completed almost its first six month of itsgovernment. Expecting miracles and big changes in such short span of timecan not be expected but the disturbing fact is that we are yet to see anyagenda of the government that may at least be termed as a ray of hope forall the stake-holders. We have witnessed that the economy has beendeteriorating quickly during past couple of years. Foreign and even localinvestors are fleeing out of the country. Besides other factors, analarming security situation threatens to accelerate a vicious cycle ofeconomic decline, dealing a devastating blow to a country.
A general perception among the business and industrial circles has beendeveloped that "Today in Pakistan, there's no way to make money becausethere's no law and order". The Karachi Stock Exchange benchmark index haslost 42% since an April high despite officials fixing a floor for themarket late last month. During second week of September, the index fell13.92 points to 9202.31 in thin trade, fewer than 60 points above thefloor set at 9,144. About $180 million has left Pakistan through marketchannels, and analysts say that figure is a fraction of what has fledunofficially. Pakistan's BMA Capital Management estimates as much as $1.5billion has exited since April.
After entering into deregulated era, Pakistan has been riding a wave offoreign investment and consumer-driven growth. Until the last fiscal year,when growth slowed to 5.8%, Pakistan's economy had grown an average of 7%annually for the last five years. In the current year, Pakistan's economyis expected to slow to about 4.6%. The government already confronts a wideassortment of challenges. In August, consumer-price inflation hit anannual rate of 25%, hammering the poor. Automobile sales in July skidded43% from a year earlier, highlighting slackening consumer demand among anew middle class. Pakistan's farm sector -- accounting for about onequarter of the nation's economic output grew just 1.5% in the past fiscalyear.
The IT sector which is backbone for all modern economies has also facingthe same torment and its growth has been slowed down alarmingly. Theirrational taxation, being inherited from previous regime, decline ofrupee and unprecedented inflation has destabilized this fragile sector andthe current democratic regime must come forward to rescue this vitalsector of the economy.
Pakistan's textile industry, the biggest provider of factory jobs, also isseeking government relief from mounting losses. Pakistani textileexecutives complain that security concerns have scared away foreigncustomers, many of whom refuse to travel to Pakistan. When Pakistaniexecutives visit Europe and the U.S., clients typically buy half a normalorder, while the rest goes elsewhere as a hedge against instability. Theother sectors are facing several problems as well. According to afertilizer producer, the weak rupee has inflated the price tag of theirnew fertilizer plant to $850 million from an earlier estimate of $600million. The stock-market crash has squeezed his brokerage operations,depriving his company of needed cash.To confront the economic challenges, Pakistan is seeking loans from theWorld Bank and the Asia Development Bank. It is asking Saudi Arabia -- thenation's largest supplier of oil to defer, or forgive, up to $6 billion indebt this year. And it is counting on more aid from the U.S., on top ofthe $10 billion-plus in assistance since the Sept. 11, 2001, attacks.Obviously these are important steps but no foreign assistance could makeany tangible difference till the confidence of investor and businesscommunity is not being revived. Hence, the regime must introduce businessfriendly policies and undoubtedly, time is tickling away rapidly.
The regime ought to consider the fact that with slower growth in industryand weak global demand conditions, projected import growth will stillresult in a large trade deficit. Despite possible reduced oil consumption,as a result of scrapping domestic subsidies, the oil import bill willremain bloated. The present power shortages are a result of chronic underinvestment in new generation capacity, high operational inefficiencies dueto the lack of expansion of the power transmission and distributioninfrastructure, and delayed institutional reforms.
The experts are of opinion that Pakistan should develop a home grownstrategy for production-led development and growth in coming years so thatthe country could be able to cope with the mounting challenges of recordhigh inflation, unprecedented unemployment and poverty reduction. Thegovernment should also involve the private sector in formulation andimplementation of production-led growth strategy to upgrade agricultureand manufacturing sectors. These steps would ultimately contribute tobetter growth, generate employment, enhance revenue and strengthen socialsecurity nets, ultimately proving beneficial to the business & industry,strengthening the economy and providing much needed relief to the poormasses.
* The writer is the Senior Vice President of Islamabad Chamber of Commerceand Industry (ICCI) and the President of Pakistan Computer Association(PCA).
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