SBP’s Annual Report

THE State Bank’s annual report for 2000-01 highlights improvements and failures that occurred in the economy during the preceding year. At the same time, it warns against raising excessive expectations about the prospects of foreign assistance and its likely effects on the fiscal and balance of payments situation. During the last fiscal year improvements were evident in areas which were of particular concern to the IMF and lapses were visible in sectors of primary interest to the people of Pakistan. In overall terms, the performance was satisfactory in the sense that important conditionalities under the stand-by arrangement were fulfilled to the satisfaction of the IMF, thus qualifying for the Poverty Reduction and Growth programme.

On the improvement side, budgetary deficit was contained; tax revenues were increased, both in absolute terms and as a ratio of GDP; expenditure was reduced; and inflation remained low. For the first time the current account was in surplus, with exogenous factors making the main contribution towards the realization of this. Among these factors one was periodic purchases of the dollar in the kerb market by the State Bank and second was the Saudi facility of oil sales on credit during the last three years — which has now been turned into official grant. Foreign exchange reserves reached a respectable level during the year. Interest rates started falling, making bank borrowing less costly and facilitating the utilization of the idle capacities of the manufacturing sector which registered a growth rate of 7.8 per cent. Government borrowing from the banks remained within limits.

On the negative side, the economy shrank by 2.6 per cent and both national savings and investment declined as a ratio of GDP. The budgeted development expenditure was slashed substantially to bring the deficit close to the ceiling agreed upon with the IMF. The rupee-dollar parity depreciated by 18.6 per cent. This was the largest adjustment made during the last two decades. What the report is silent about is the level of unemployment and the lowering of the purchasing power of the common people. In the context of reforms, imposed by the IMF, the emphasis was on large-scale retrenchment in public sector banks and other corporations. Severance compensation was financed through foreign loans. The public sector development expenditure remained low so that new jobs were not created.

The same situation prevailed in the private sector. The rigours of unemployment intensified as a result of increases in taxes, especially sales tax, and the utility charges. What is ironic is that repeated enhancement of utility tariffs has not brought about any improvement in the financial situation of these utilities. Banking reforms with repeated lay-offs of staff have also not brought any benefit to the people. Deposit rates have been substantially reduced. The gulf between lending and deposit rates has widened, benefiting only the top banking hierarchy. This area is the sole preserve of the SBP. It should take steps to reduce the lending-deposit rate gap. As a result of increasing joblessness and the decline in people’s purchasing power on account of higher taxes and utility charges, more and more people are falling below the poverty line.

Despite the government’s emphasis on the reducing foreign debt and laying the foundation of a self-sustained economy, the stock of debts has grown and the State Bank report shows that the national debt is 15 per cent higher than the gross domestic product and every Pakistani owes more than the annual income per capita. Pakistan’s entry into the international coalition against terrorism and its becoming a front-line state in that context have enhanced the risks to the economy. Despite an expected increase in foreign financial assistance and freer access to the US and European Union markets, the cost of exports on account of higher freight, war-risk insurance and fewer buyers are going to adversely affect the economy. The key determinants will be the duration, intensity and geographical spread of the conflict. At any rate, whether the war is long or short, the current year is not likely to achieve the key targets — those of growth, tax collection, exports, etc. This apprehension is contained in the SBP report. The government should seek adequate compensation from the coalition partners for these losses.

Assault on civil liberties

IN ITS frenzied drive to deal with terrorism, the Bush administration has passed and signed into law legislation that takes a broad swipe at many of the civil liberties that Americans have come to cherish. The passage, with little or no debate and by a margin of 98-1 in the US Senate and 357 to 66 in the House of Representatives, of the loftily titled Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act could seriously curtail the rights of America’s ethnic minorities and immigrant communities.

Among other things, the USA PATRIOT Act permits the US attorney-general to incarcerate or detain non-US citizens on the basis of mere suspicion; minimizes judicial supervision of telephone and Internet surveillance by law enforcement agencies engaged in anti-terrorism investigations and in routine criminal investigations; expands the ability of the US government to conduct secret searches both in anti-terrorism and in routine criminal investigations; makes the payment of membership fee to political organizations suspected of links to terrorist groups a deportable offence; grants the FBI wide access to sensitive medical, financial and educational records about individuals without having to show evidence of a crime and without a court order; and puts the CIA and other intelligence agencies back in the job of spying on Americans (most likely targets could be ethnic minorities). The new draconian law also allows searches of personal financial records without notice and without judicial review on grounds that do not include probable criminal liability; allows students’ records to be searched on a mere presumption of relevance to an investigation and thus creates a new amorphous definition of “domestic terrorism” that could target individuals who engage in acts of political protest, making them liable to be subjected to wiretapping, surveillance of their Internet use and enhanced penalties.

It should be quite clear from this that the potential for misuse of this sweeping legislation is immense, especially in the case of ethnic minorities, new immigrants (especially those from Muslim or Middle Eastern countries) and even ordinary visitors to the US. What is particularly disturbing is that little has been left to judicial review and victims of abuse of this Act will have little recourse to the otherwise available American justice system. The lone dissenter in the US Senate, Russell Feingold (Democrat of Wisconsin) could not have been more right when he said that the USA PATRIOT Act was just one of many in a long line of government-sponsored assaults on basic freedoms in America. The Alien and Sedition Acts, the suspension of habeas corpus during the Civil War, the internment of Japanese-Americans, Italian-Americans and German-Americans during World War II, the witch-hunt of suspected communist sympathizers during the McCarthy era and the harassment of anti-war protesters during the Vietnam War were cited. One only hopes that as time passes and the current hysteria over terrorism subsides, the negative potential of this new piece of legislation will be contained and not used as a handy instrument of harassment and persecution against the ethnic and immigrant communities who are already feeling unsafe and insecure in the post-September 11 situation in America.