The issues concerning internal security coupled with the eight-months-long standoff with India are causing problems to achieve macroeconomic stability in the country.

Officials of the economic ministries have reportedly expressed their concern over the deteriorating internal security to achieve the objective of substantially reviving the economy through a macroeconomic stabilisation programme being supported by the international financial institutions (IFIs) and the major bilateral partners, specially the United Stated, European Union and Japan.

Nonetheless, despite the continued threat to internal security these officials claim that there has been marked improvements in key macroeconomic indicators. They said that industrial production which averaged 3.9 per cent during 1990-99 has averaged 6.5 per cent during 2001-2002.

Overall fiscal deficit which averaged 7.0 per cent of GDP over the last two decades has now been reduced to 4.9 per cent of GDP in 2001-2002 and projected to decline further to 4.4 per cent 2002-03. Workers’ remittances have remarkably increased to $2.3 billion during 2001-02 which is on the same level which were seen during 1980s.

Foreign exchange reserves now stood at $7.6 billion compared to $1.6 billion in October 1999 and that today nobody talks about default. Deficit in external account which averaged almost 5 per cent of GDP in 1990-99 has now turned surplus to the extent of 2.5 per cent of GDP in 2001-02.

External debt and foreign exchange liabilities stood at $38 billion in 1998-99 which have been reduced to $36 billion. Exports which averaged at $8.3 billion in 1994-99 have crossed over $9 billion mark.

Similarly, domestic debt which was growing at an average rate of 16 per cent per annum during 1990-90, has declined in absolute term in 2001-02 from Rs1800 billion to 1754 billion— a reduction of 2.5 per cent.

Debt servicing as percentage of total revenue was 63.5 per cent in 1998-99 but declined to 49.7 per cent in 2001-02 and projected to decline to 44 per cent in 2002-03. Reserves have provided much needed stability in exchange rate which is today not only stable but predictable.

However, the officials concede that the fruits of these achievements and reforms will be realized in 2 to 3 years time, provided the country stays on course and that any departure from reform agenda may derail the whole process of strengthening the economy.

They admit that without macroeconomic stabilisation things will not improve and that they are trying to get the active cooperation of the World bank to resolve this issue. They are hoping that the Bank will support along with the IMF to help achieve macroeconomic stabilisation programme agenda for restoring fiscal sustainability, reduce internal and external debt, and improve the competitiveness of the economy through supportive trade, monetary and exchange rate policies.

The World Bank’s key contribution in this behalf could be in improving public expenditure management and supporting reforms of tax administration, safe and sound banking, efficient public utilities, and structural fiscal and governance reforms. In particular the Bank is expected to continue to carry out the annual reviews of the government’s public sector development programme (PSDP) at the federal level and will carry out a national public expenditure review to be completed during the current financial year.

About the internal security the Asian Development Bank in one of its latest reports, “Pakistan Economic Update” says that the current standoff between India and Pakistan was triggered by a terrorist attack on the Indian Parliament on December 13 last year when troops were mobilised on borders by both the countries.

“The deterioration of internal security has been a major concern throughout most of the financial year 2001-2002 and the last five months have been marked by a series of attacks”, the update said seeking the government to make more efforts to ensure internal security with a view to reviving the economy.

Generally, the representatives of the World Bank, the IMF and the ADB praise the government for taking bold and unpopular decisions specially the linking of oil prices with international prices and the imposition of 15 per cent general sales tax on almost every items. However, they do say the government will have to make more efforts to achieve macroeconomic stability and improve internal security.

“Both these issues are very critical to have any real turnaround in the economy”, says an official of the local multilateral agency in Islamabad.

He said that in the wake of 9/11 Pakistan has been substantially supported by the IFIs as well as bilateral donors. “But we believe Pakistan needs more market access in US, EU and Japan but foreign assistance will not alone work and your government will have to adequately ensure internal security and implement World Bank-backed macroeconomic stabilisation agenda to considerably reviving the economy”, he said choosing anonymity.

Fears are also being expressed as to what will happen after October and whether the new elected government will follow the policies of the present government. The donors are assessing the situation and plan to meet the politicians and ask them to continue reform agenda beyond October this year so that the economy could be fully revived.