Economy: outlook after Musharraf

By Nasir Jamal

For the last several months people were given to understand that Gen Pervez Musharraf’s departure from the presidency would end political instability needed to solve most of Pakistan’s pressing economic problems. Initial market response was positive.The stock markets rallied and the rupee regained some of the ground lost against the dollar on Gen Musharraf’s resignation on last Monday. But the upsurge in the stock market and the value of the rupee proved a temporary phenomenon and both fell heavily on the back of reports of differences obtaining between the two major coalition partners — the Pakistan People’s Party and the Pakistan Muslim League-Nawaz — on the question of reinstatement of sacked judges of superior courts.

Most economic experts and businessmen, talking to this scribe, in the last few days expressed disappointment with the coalition’s one-dimensional focus on the political issues.

“It is unfortunate that the coalition leaders are totally pre-occupied with the political problems — removal of Musharraf and restoration of the judges — and have showed little concern for the pressing economic issues that are becoming more difficult by the day,” a leading industrialist from Sialkot, Mr Ijaz Khokhar, lamented.

“I’m not saying that political uncertainty is not a problem. Political instability is a major risk to the economy and has played a crucial role in the deterioration of economic conditions of the country in more than one way in the last one year or so.

But it also doesn’t mean that the entire government loses its focus on the economy. If you visit the ministries related to trade and industry these days you wouldn’t find anyone there to listen to your concerns and answer your queries. Our politicians must understand that both the political and economic problems need to be handled simultaneously to avoid headlong economic plunge,” Mr Khokhar insisted.

Gen Musharraf’s resignation hasn’t settled all the political issues that divide politicians and ordinary people. “Musharraf was only a small part of the problem. The most pressing question remains: whether the coalition will last long enough to bring back political normalcy in this country ?,” wondered a Lahore-based businessman, who refused to be identified. “It would be unfortunate for the country, its people and business if the major coalition partners — the PPP and the PMLN, fail to settle their differences and get along for five years,” he said. “True, Musharraf’s departure has reduced political instability to some extent. But it doesn’t mean all the political problems are solved,” asserted Mr Shahid Kardar, a former Punjab finance minister and noted economic expert.

Although later reports say the coalition has been able to narrow down its differences over the judges’ issue, raising hopes that political tensions would cool down in the weeks to come, experts say the coalition government needed to come out with a package of credible economic policies before the economic problems facing the country could be taken care of.

“People don’t yet know where the ruling coalition wants to take the economy to; they are yet to give their package of economic policies on the basis of which investors and business community would take its decisions,” noted Mr Kardar.

“Musharraf’s further stay in the presidency or his departure from there matters little to the economy. The stocks jumped and the rupee gained strength against the dollar on Musharraf’s departure. But that was a temporary phenomenon. The economic outlook will remain negative as long as the incumbent rulers do not formulate their economic strategy for the future. It’s a new government, new system; how would people know what do they want to do unless the coalition gives its real political and economic agenda?,” asked Dr Salman Shah, a former finance minister in the caretaker government. Mr Khokhar said the economy was facing numerous fundamental problems including escalating fiscal and current account deficits, which were depleting foreign exchange reserves, weakening the rupee and spiking inflation.

“The increasing financial imbalances and rising inflation is driving capital out of the country, weakening the investor confidence and affecting exports,” he said.

The external trade numbers released recently showed that trade deficit — which stood over $20 billion last year — has spiked to just below 50 per cent to $1.64 billion during this July from $1.10 the same month last year. July inflation numbers too are deteriorating and CPI inflation stood at 24.3 per cent, with food inflation rising to just below 34 per cent, during the first month of the current fiscal. The annual average CPI inflation was recorded at 12 per cent and food inflation 17.6 per cent during the last financial year.

“Economy is what affects the people most; and it is the last thing on the agenda of the government at present,” said Mr Almas Haider, a prominent auto vendor from Lahore. “Government spending is decreasing and the rupee remains volatile. The current economic indicators show that the next three to six months are very risky for the economy. But let me add here: if the government refocuses its attention on the economy and takes measures to put it back on the track these can be the best of times,” he insisted.

“Political uncertainty is not going to go in the near future,” asserted Mr Akber Sheikh, a leading yarn exporter and builder in Lahore. “It is there to stay even without Musharraf. You cannot hope to first tackle political uncertainty and then to take on the economic challenges. Both need to be handled together. The rulers need to build a consensus how do they want to tackle the economic issues and when. Unless they begin to handle the economic issues, how can you expect them to solve them?,” he wondered.

“With financial imbalances growing wider and inflation rising to record levels, we need investment and growth in the export-oriented sectors. That is where the government must intervene and help the export-oriented industry by reducing the interest rates. Unless interest rates are lowered, you cannot make people invest in the industry and grow the economy,” Mr Sheikh said.

Mr Abdul Kareem Dheedhi, a leading stock broker, too advised the State Bank of Pakistan to reduce the interest rates. “The tight monetary policy is playing havoc with the industry and the rest of the economic sectors. Now that the government has removed subsidy on oil, there is no point in keeping the interest rates at the current high levels. If the monetary policy is not loosened, it is going to damage the economy beyond repair. Some 10,000 people working at the capital markets in the country have already lost their jobs,” he said.

Dr Ali Cheema, who teaches at the Lahore University of Management Sciences, said there was no painless solution to the inherent structural issues facing the economy. “In the short run, the economy needs stability in exchange rate and interest rates. Sooner or later the government will have to clearly formulate its economic objectives and take crucial decisions to bring about stability to exchange and interest rate in order to move forward. But that doesn’t mean that anyone can revive the economy without undertaking critical structural reforms. Unless these reforms are carried out, you cannot expect to put the economy on the road of sustainable growth.”


Courtesy: Daily Dawn, 25/8/2008

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