By Javed Mahmood
Over a year long political chaos that gripped the entire country in March 2007 and turned Pakistan into a laughing stock all over the world had badly undermined the economic foundations of Pakistan that had gained some convincing strength during 2003 to early period of 2007 period. The unending disturbing scenario of political mess had become a rich source of tension and irritation for the countrymen, especially the business community as the new coalition partners in the government have locked their horns over the reinstatement of the deposed judges and showing diminutive concern for the major issues like inflation, artificial shortage of essential food items, burgeoning twin deficits and round-the-clock agony of load shedding.
After the formation of the elected coalition government the countrymen heaved a sigh of relief with optimism of an end to political commotion and relief from the teasing price-hike. But during their first three months the coalition partners have disappointed the masses by prolonging the political upheaval and ignoring miseries of the masses. Is it not an alarming development that almost all the key economic indicators have skipped below the target in 2007-08 mainly because of political turbulence in the country? Although the new rulers are blaming President Pervez Musharraf and ex-Prime Minister Shaukat Aziz for derailing the economy and fuelling the price hike, the coalition partners are too treading on the same path and following the same pattern, creating more disturbance and annoyance in the business circles and general public.
The capital market observers and analysts are of the opinion that the economy of the country could sustain a massive and beyond redemption loss in coming months in case the coalition partners failed to ensure political stability and continued to pursue their political agendas while setting aside the deterioration in the economic pillars of the country. In the current financial year the country had already seen an irreparable loss on the external side as the current account deficit had mounted to 12.30 billion dollars in 10 months of FY08 ($6.99 billion in FY07) and trade deficit inflated to 18.75 billion dollars ($12.31 billion in FY07) in 11 months. The combined economic loss of twin deficits (current account and budgetary deficit) in 2007-08 is being seen very close to one third of the real GDP of Pakistan in just one year.
The all-time high current account deficit is the outcome of the failure of the policy-makers to mop-up five to six billion dollars additional foreign exchange in FY08 from the international market by floating global bonds, Global Depository Receipts and privatisation of mega public entities in the pipeline. From FY05 to FY07 the federal government had generated billions of dollars from the international markets and investors through the sale of bonds, GDRs and privatisation of public entities that contributed to stability in the economy. However, in FY08 this process remained stalled because of political tension, imposition of emergency, tug of war over the reinstatement of the deposed judges, general elections, formation of a coalition government and unending rifts between the political allies and President Pervez Musharraf on a number of political issues.
Meanwhile, six to seven per cent depreciation in the value of rupee against the US dollar in less than two months time had also wiped out the equal size of the GDP in US dollars and put extra burden of repayment of foreign loans. Two months back the dollar-rupee exchange rate was in the range of 62.50 that had now settled to over Rs 67, after excelling the mark of Rs 71 last month when the currency market went berserk due to the flurry of speculations and manipulation of the key players.
After this unexpected depreciation in rupee value the federal government would have to spend six to seven per cent more in rupees on the repayment of foreign loans and mark-up.
The fast-depleting foreign exchange reserves, from 16.40 billion dollars in October 2007 to 10.90 billion dollars in June 2008, also indicate the gravity of the outflow of the foreign exchange ($5.50 billion) because of the record current account deficit and flight of capital from the country.
The external and domestic debts have also surged to the unprecedented level in 2007-08. In 2006-07 the external debt/liabilities were reported at 40.48 billion dollars which shot up to 45.92 billion dollars in 10 months of 2007-08, showing a shocking increase of 5.44 billion dollars in less than one year period. The domestic debt too had widened to 3.073 trillion rupees in 10 months of FY08, from 2.601 trillion in FY07, reflecting a big surge of 472 billion rupees in it.
What would happen to the economy in 2008-09 if the present political imbroglio continued to dominate the coalition partners and overshadowed the other activities in the country is a question the businessmen often ask from one another during their conversations and meetings?
The rulers should tackle the threats being hurled by the United States, Afghanistan regarding militancy, pursue the economic agenda seriously to pre-empt further erosion in the economic foundations, try their best to put the economy back on track and provide relief to the masses from the price-hike. Otherwise, the sentiment and zest of masses mandate in favour of the coalition partners would ultimately turn into a furry and disgust that could give another chance to the organized opportunists to wrap-up the democracy and the reigns of power into their own hands.
Source: The Nation, 23/6/2008