The buoyant foreign sector that has stimulated the domestic demand, helped improve industrial output and raised the private domestic investment seems to be losing it's growth momentum.

The trend does not ring alarm bells but indicates symptoms that the boom cannot be taken for granted for a much longer time. During the July-February 2003-2004, workers remittances, though within the orbit of official expectations, declined to $2.545 mn as against $2.873 mn in corresponding period of 2002-2003.

In comparable first seven months of the two fiscal years, total foreign investment dropped from $617.8 mn to $301.6mn. Despite the buoyancy in the stock markets, portfolio investment has turned negative in the comparative period. The outflow during July-January 2003-2004 was of $37.9mn as against inflow of $21.4mn during same period last year. Foreign direct investment (FDI) fell to $339.5 mn as against $596.4mn.

During July-February 2003-2004, exports rose by 14 per cent to $$7.878 bn. In February this year, export earnings however slipped to $903 mn compared to prior seven months average of $997mn.

The trade gap is mounting with banks awash with cash funding imported goods. Trade deficits have soared to $1.2 bn in first 8 months this year as compared to $839mn of same period last year. But foreign exchange reserves are at all time high of $12.6 bn.

These trends may turn out to be the harbinger of the business cycle, ups and downs in the external sector, though it cannot be denied that a lot of efforts have gone over the past four years to stabilise and push exports.

Historical trends indicating rapid growth in exports for a few years have been followed a stagnation for a similar period and the cycle repeats itself time and again. But with each boom, the export levels have reached unprecedented levels.

In the current situation, the export drive suffers from quite a few snags. Exports are too heavily dependent on few traditional items and are textile-driven. These put limits to the export growth potentials.

Besides, the industrialized West is turning protectionist after it was hit by the economic downturn which began around the second half of 2000, -be it commodities, service sector or immigration of labour- specially after 9/11.

Developed states like the US and UK suffer from huge trade deficits and work for a global financial market from where they borrow money to tide over their current account deficits.

The United States is caught up in a contradiction with the US Fed chairman, Alan Greenspan, advocating a global free market nurtured by creative ideas and the Bush doctrine designed for physical occupation of territories (Iraq) to manage captive markets.

According to OXFAM, the US borrows $4 billion a day at the cheapest rate from the international markets. On the other hand, demands of the US real economy force it to turn protectionist. This includes outsourcing of jobs to Indians. One of nominated candidates of the Democratic Party had described free trade as security risk comparable to that coming from terrorists.

" Globalization presents us with a choice: embrace it and make it work for us, or try to thwart it", says British Prime Minister Tony Blair, asking the Europeans to step up reforms.

He was perhaps responding to a sharp fall in the European Union's combined trade surplus to 1.2 billion euros in January from 6.1 billion in December 2003. He advised Europe that she should "raise its game of economic reforms to compete with the technological prowess of economies such as China and India."

The global financial market, in its present form, will make any reforms difficult- whether it is the developing or developed economies. Temporary relief or gains would be followed by disastrous consequences.

Finance capital is itself facing organic failure, excess money with no productive investment. Currency has been turned into a commodity. And bulk of the currency trading is speculative business. Economic development is not on the international agenda.

In this global scenario, it appears that export-led growth may not be not workable. It may lead to trade imbalances and debt traps like those facing the US and many of the developing states.

The US has the advantage of cheap borrowing which developing countries are denied cheap foreign credit. The US bonds carry a return of around 3 per cent. Pakistan borrowed $500 million through eurobonds at 6.75 per cent.

How long can the US keep on borrowing and the lenders keep on obliging Washington. Its annual trade deficit, in the range of $500-550 billion, cannot be overcome by an export drive or weaker dollar. The global market does not have such a large appetite for expensive the US goods with rising global poverty. Washington is left with no option but to curtail its imports. Hence the protectionism.

As it seems, in future the globalization will be governed not by export-led growth but exchange of trade surpluses between countries after they have met their domestic needs. Currently, the domestic demands are suppressed to boost exports by levy of heavy indirect taxes on the common citizens. The richest yield comes from an exorbitant sales tax on consumption.

The focus needs to shift dramatically towards making the domestic market prosperous. Officials acknowledge that economic growth is not a sufficient condition for reducing poverty.

Nor, it may be added, is economic growth (primarily boosting output through existing production capacities) a sufficient condition for sustainable economic development.

Economic activity and industrial production need to be diversified at a rapid pace to produce much larger range of goods and service. The current macro-economic policies should be extended to cover a much broad based economic development agenda. This should be reinforced by a pro-active role of the government in the face of the declining foreign investment and low levels of domestic investment.

The turnaround in the economy has been made possible because of massive capital inflows in shape of home remittances, increased export earnings, IFI loans and foreign exchange saved through debt relief and rescheduling. The robust external sector is not the outcome of improvements in national economy. In the turbulent times and the faltering global market, such blessings as 9/11, may not long last.

Of course, the government is not totally oblivious of its responsibilities. The IFIs and bilateral donors have been approached for $56bn loan for a long term plan for development of infrastructure including $9bn for hydel power projects.

But the devil lies in the details. Would the funding lead to boosting our agricultural economy and fuel our industrial growth or will it leave our economy fully mortgaged as in the past.

Will the local contractors benefit or a major share of the money will be siphoned off by big foreign firms and a host of World Bank and other consultants. The country has to guard against repeating the same mistakes.

To move faster and to get quicker results, the district governments should also be encouraged through bank financing to build small dams through out the country. Excess bank money can be put into productive use rather than diverting much of it into speculative share businesses.

For anything to succeed in the public sector, the governance must improve first. The two-key issues are: an archaic political system and an inefficient administrative structure. It is quite surprising that the per centage of development spending as a ratio of GDP has remained stuck for past 2-3 years at 1.3 per cent and the pace of utilization of budget allocation has slipped to 35.5 per cent this year from 38.4 per cent in last fiscal.

Agriculture is the foundation of our economy. It provides raw material and markets for our industry. Yet it is the most neglected and credit starved sector. Instead of IMF-induced reforms operating on the periphery, the core issue of backward and outdated cultural practices in agriculture must be rooted out and farming must be modernized.

The crop-sharing pattern should be replaced by cash contract system as prevalent in fast developing and developed economies. It is myopic vision that gives poor yields as against massive benefits in modernization.

The direct foreign investment has been stagnating around $400-500 mn dollars per year over the past few decades. Investments from the Middle East and China are likely to pick up as regional trade improves over the years.

The industrial economies would remain protectionist at least in the medium term, offering very little, either in this shape of market access, financial assistance or investment. Their role in global economy is more likely to be replaced gradually to a great extent by regional trade and investment.

While foreign trade and investments do help in boosting economic growth, they cannot be relied upon a source of sustainable development and poverty reduction.