As the current trends indicate, it seems difficult for the country’s economic managers to post a balance of payment surplus (BOP) this fiscal year without additional foreign borrowings. In the last fiscal year, the country recorded a BoP surplus of $3.5 billion but its stock of foreign debt and liabilities rose by $3 billion to $40 billion.

In July-August FY08, exports grew 4.3 per cent to $2.96 billion but imports shot up to $5.32 billion, up by 6.8 per cent. As a result, trade deficit increased by 10 per cent to $2.36 billion. The government maintains that that the export target of $19.2 billion set for this fiscal year, will be achieved.

“But in view of growing political uncertainty and a near collapse of the law and order, it would be too difficult to meet the target,” says Mr Tanvir Sheikh, President of the Federation of Pakistan Chambers of Commerce & Industry. “Foreign buyers were already shy of visiting Pakistan. The recent killings and suicide bombings have totally scared them away.”

Businessmen say most of their foreign trade partners now don’t want to come to Pakistan and finalise trade deals in Dubai, Hong Kong or Singapore.

“Besides the textile sector which accounts for two third of our exports, is still crying for the government support and incentives but to no avail. How can we meet the export target then?” remarks Mr Sheikh.

Other businessmen also say that political power tussle being staged under the spotlight of international media may take its toll on inflows of foreign exchange. And the most effected area may be portfolio investment.

Between July 1-September 13 there was a net outflow of $62 million from special convertible rupee accounts that handle portfolio investment proceeds.

However, bankers and stockbrokers say that the situation is better than what it was at the end of August. Between July 1-August 30 net outflow from SCRA had reached $191 million. Data on foreign direct investment show that in the first month of this fiscal year $200 million FDI inflow was 20 per cent higher than in the first month of last fiscal. However, it is feared that the pace of FDI inflows would slow down from August onwards because of political uncertainty and increase in suicide bombings.

The American Business Council of Pakistan has said that 76 per cent of its members considered the law and order situation poor and 72 per cent believed that internal political situation was not happy. “Things are apparently not good enough right now but our overall outlook for doing business in Pakistan is positive,” said a member ABC.

ABC President Mr Iqbal Bengali said at a press conference that 75 per cent members were planning to invest in Pakistan over a period of next 12 months.

Overseas Pakistanis also appear to be upbeat about Pakistan’s economic prospects as they sent 31 per cent more remittances in July this year than in July last year. In the entire fiscal year, these remittances might reach $6 billion up from $5.5 billion in the last year.

But a rapidly rising trade and current account deficit and the prospects of a slower growth in FDI and portfolio investment indicate that Pakistan’s BoP would suffer. A government official said the country plans to borrow from the international debt market through launching of bonds and would seek financial support from the World Bank and Asian Development Bank etc.

He categorically said that there was no need to borrow from the IMF. “Look at our reserves. They have crossed the $16 billion level. Why should we then look towards the IMF that lend traditionally to the countries with balance of payment problems?” asked the official.

Emboldened by a more than a billion dollar increase in the forex reserves in less than three months of this fiscal year, the State Bank has liberalised advance payment for imports. It said the other day that banks could now make up to 100 per cent advance payments.

Bankers said this, coupled with the earlier decision allowing the banks to pay 30 per cent of oil import bills on their own, should keep the rupee under pressure in the weeks to come. This seems a likely scenario also because oil prices are once again showing a rising trend and in the last week were hovering close to $80 a barrel level. Also, Pakistan needs to make large payments at the end of every quarter to its foreign debtors. “So the rupee might lose a few more paisas towards the end of this month,” said treasurer of a local bank.

The rupee has lost 0.3 per cent of its value against the dollar so far this fiscal year falling to 60.62 a dollar on September 12 from 60.47 on June 30. n

—Mohiuddin Aazim