September 11, 2002	Wednesday	Rajab 3, 1423

KARACHI, Sept 10: For the US and many countries of the world it was only the air attack on Twin Towers in New York and on Pentagon in Washington on September 11 morning last year that impacted their economies. But Pakistan’s economy suffer from the consequences of this attack plus a disturbed Afghanistan, a virtually unending standoff with India in the immediate neighbourhood and of course the drought that has turned rivers and canals into dry beds and green fields into barren lands.

As if all these developments were not enough, an all pervading and synchronised recession in the US, EU and Japan remains till this day, a cause of concern for the Pakistani exporters.

Pakistan’s economy made some losses and a few gains during last one year because of these developments. The gains have been mere book entries. But the losses that were suffered, have added to the burden of 140 million people of Pakistan.

A bulging foreign exchange reserve kit of 7.7 billion dollars is no doubt worth the noises being made about it by the government. Similarly a surplus current account in the year 01-02 is also a matter of joy for those in the government. But these have failed to bring any cheers to almost 50 million people who are condemned to live below the poverty line.

In the fiscal that ended June this year, Pakistan suffered a staggering 7 per cent budget deficit. In the 2001-02 budget the government has targeted to keep deficit at 4.9 per cent of GDP.

“The events of September 11 (2001) and December 13 (eventually leading to standoff with India) and their subsequent developments seriously undermined government’s efforts to further reduce fiscal deficit,” the Economic Survey for 2001-02 explained while blaming September 11 event for causing revenue slippages and tension with India for slippages in expenditure. The total budgetary gap was Rs257 billion. It has been primarily attributed to one time adjustment payment for KESC and tax refunds to banks but it also include a Rs17 billion additional defence requirement on account of troops deployment. This mounting expenditure on defence is showing no signs of let off.

Besides, its psychological impact on the overall business environment in the country continues to be negative and keeping the investors away.

“We bleed much more than India in Kashmir or in Siachin,” a top executive of a public sector financial institution said on condition of anonymity. “Why don’t you realise that India has a much bigger economy than us and can absorb these shocks,” he argued contending that Pakistan’s economy is too small to withstand these abrupt pressures. “Finally it is our image problem,” he said and refused to elaborate further on the issue.

Pakistan’s gains after joining the US coalition in post-September 11 period is a 600 million dollars grant, 300 million dollars for looking after and providing comforts to the US troops in bases within Pakistan and 143 million dollars worth of additional export. And of course a 12 billion dollars debt relief negotiated after September 11 event provided about Rs87 billion fiscal space in the 02-03 budget. But the US did not provide any tariff concession to Pakistan’s export. The EU did and it helped Pakistan in gaining extra access and earn a little more foreign exchange to close 01-02 balance of trade on somewhat lower side, from 1.5 billion dollars in 00-01 to 1.2 billion dollars in 01- 02.

Pakistan paid heavily for the US led coalition attack on tiny Afghanistan in October last year. Traders and shipping companies world over put Pakistan in the war zone and levied heavy surcharges. Pakistan’s insurance business, since then till this day, remain without re-insurance cover on terrorism. Export orders were cancelled and a few US companies have simply refused to place fresh purchase orders.

The subsequent shoot out incidents in Karachi, Islamabad, Bhawalpur claiming lives of Pakistanis and foreigners and eruption of troubles in Pashtun tribal belt are the direct consequences of the Pakistan’s support to the US in Afghanistan and have left deep scars on national economy.

What Pakistan has actually gained in material terms from the September 11 event is the increase inflow of dollars. Following stringent anti-laundering measures and close monitoring on the money flow channels by the US administration, the remittances showed phenomenal growth. Remittances during the last fiscal amounted to 2.4 billion dollars and still maintain same tempo in first two months of the current fiscal.

In last two and half years the State Bank did the highest ever dollar shopping worth over Rs250 billion to build up a foreign exchange reserve of 7.5 billion dollars. It helped in stabilising rupee value from highest Rs67 for a dollar to around Rs60.

But this build-up in foreign exchange reserve and a substantial rise in dollar inflows from Pakistanis abroad has created problems for the exporter who is now struggling hard to keep his hold in the markets he has been able to reach with great difficulty. The depreciation in dollar value, a reduction in duty drawback rates and rise in utility tariff has made Pakistani exporter uncomfortable.

On more than one occasion finance minister Shaukat Aziz and State Bank governor Dr Ishrat Hussain has said the realistic value of dollar is Rs55 a dollar. It has brought new challenges for the Pakistani exporters.

“A Pakistani exporter now gets four to five rupee less on every dollar he earns from his business when compared to a year earlier return,” Aziz Memon, a leading readymade garments remarked while referring to dollar’s exchange worth Rs64 plus in September last year to a little less than Rs60 September this year.

He agrees that at about Rs60, the dollar is still over valued. But the government will have to think a lot on how to address the various issues of the exporter before any decision is taken to bring down dollar value to realistic level of Rs55 a dollar.

But there are others who think that exporters are being subsidised by Rs5 to Rs6 for every dollar they are earning now and it is a pretty costly business. Financial cost for the exporters have been brought down from 15 to 16 per cent a year ago to 12 per cent now. Exporters get drawback refunds. How much the public exchequer has to pay for subsidising 9 billion dollars export in 01-02 and for reaching 10 billion dollars figure? At present there is no firm answer but simple guess put it anywhere from Rs18 to Rs20 billion.

Aziz Memon is confident that government’s effort will get more access for Pakistani goods in the US market and also a concession of one billion dollars write-off.

But much more important than all the achievement claims made by the government is the investment. The Economic Survey for 01- 02 admits that no headway is being made in investment but expects that with stabilisation in macro economy, good governance and improvement in infrastructure the investment should start flowing.

Independent economist feel that government should take a lead in allocating a substantial sum for investment in infrastructure and other areas. Qaiser Bengali, the Managing Director of the Social Policy and Development Centre is of the view that public sector development outlay should be of Rs200 billion at least. “The government should provide at least 5 per cent of the budget for development,” he pointed out while emphasising a strategy to push up national growth and generate employment.

In the economic survey the government too concedes that growth is equally important as stabilisation of macroeconomic indicators. It claims to have substantially increased poverty alleviation programme. But all these programmes are on paper. In Sindh more than one-third population of the officially counted 30 million people live below poverty line.

This growing poverty has started manifesting in multifarious ways. Deteriorating law and order in the urban and rural areas, rising religious fanaticism and growing unrest in educational institutions are symptoms of the disease that is about to take into grip. All these are related directly and indirectly to September 11 event and also with the tensions in South Asia.