WASHINGTON, Feb 20: Despite Pakistan’s reputation as a hotbed of Islamic radicalism, its economy is projected to grow this year at a respectable rate of 4.5 per cent, The Washington Post reported on Wednesday.
The government growth estimate, the report said, is also accepted by the World Bank.
Tax revenue is up, interest rates are down and government debt is slowly shrinking. In perhaps the best indicator of the bullish sentiment that pervades financial circles in Pakistan, the Karachi stock market last year shot up by 112 per cent, the report said.
The Post says that Pakistan’s economic potential has long been thwarted by factors common to many developing countries, such as over-regulation and losses by inefficient state-owned industries. Its problems have been compounded by pervasive corruption, feudal landholding patterns — which have aggravated rural poverty — and hostile relations with India, which have diverted resources from social development to defence.
The country’s improving financial picture is in many respects a reflection of fiscal austerity measures, such as cuts in food subsidies, imposed by the military government of President Pervez Musharraf, according to economists with international lending agencies. “Pakistan has turned around a deteriorating macro(economic) situation of a few years ago to a rapidly improving one,” the World Bank noted in a December report.
The turnaround also reflects financial assistance provided by the West in return for Pakistan’s support in the war on terrorism, as well as several unanticipated benefits of that war.
For example, because of a global crackdown on the informal hawala system of money transfers, which has been linked to money laundering by suspected terrorists, Pakistanis working abroad are now sending their money home by conventional banking routes, financial experts say. That has helped boost foreign currency reserves to a record $9.5 billion.
“Sept 11 did a great service to Pakistan,” Ishrat Hussain, governor State Bank of Pakistan tells the paper.
A related development is the partial reversal of capital flight. According to financial experts, Pakistanis, who once invested most of their money abroad, increasingly are looking for new opportunities at home — either because they no longer feel welcome in the West or in some cases because they fear their assets could be frozen in terrorism investigations.
The downturn on Wall Street has only reinforced this trend by making investments in Pakistan look more attractive — particularly to Pakistanis, who tend to be more tolerant than foreigners of risks associated with their country.
Hussain said that while the amount of Pakistani investment money being repatriated is “hard to pin down,” he has no doubt that it is happening and estimates that Pakistan will recapture $500 million in overseas assets in 2003.
There are signs that Pakistani professionals and businessmen living in the United States and other Western countries are also beginning to return home. They come because they sense opportunities and also because they fear discrimination as citizens of a country regarded as a spawning ground for terrorism, said Ali Ansari, chief executive of Aqeel Karim Dhedhi Securities (Pvt) Ltd., a major Karachi brokerage firm.
The report, however, points out that the vast majority of the 142 million people in this troubled, impoverished nation have yet to reap any real benefits from the turnaround. That is because most of the wealth returning to the country so far has been sunk into speculative investments, such as the stock market or real estate, rather than into factories or other large-scale projects that create jobs.
Experts say most Pakistanis won’t start to feel any significant improvement until growth reaches 6 per cent — something that is not expected until next year at the earliest, and then only if war in Iraq does not produce energy shortages or other unpleasant shocks.
Investment, the report said, is also coming, albeit slowly. One such entrepreneur, Zia Chishti, 31, has made a fortune in Silicon Valley while barely out of Stanford Business School. Chishti’s Lahore-based company uses satellite and fiber-optics technology to handle customer calls for about 50 US-based clients, including a major newspaper and a toy company. Chishti’s call-centre company, the first of its kind in Pakistan, employs about 150 people and is soon to be listed on the Karachi stock exchange.