Pakistan Economy - News & Updates - Archive

[Neo]

OICCI asked to invest $3-4bn in Pakistan​

KARACHI, Oct 25: Adviser to the Prime Minister on Finance Shaukat Tareen on Saturday asked the Overseas Investors Chamber of Commerce and Industry (OICCI) to increase its annual investment to $3 to $4 billion in Pakistan.

Talking to media after holding a marathon meeting with the OICCI members, the adviser said that normally their annual investment ranged $1.5 to $2 billion and urged them to increase it gradually.

He said that the mother companies of OICCI members made an investment of about $150 to $200 billion every year around the globe and at least one to two per cent of them should come to Pakistan.

“We will solve all their problems and encourage them to expand their investment in Pakistan. This is a business-friendly government and we want to encourage both local as well as foreign investors. We will reduce cost of doing business, remove red tapism and hold a regular dialogue with them,” he added.

The adviser said that he would hold meetings with business chambers every three months to listen to their problems and address them accordingly.

Tareen noted that increase in foreign and local investment would create opportunities for employment and boost the economy. “This will increase confidence of business community in the government,” he observed.

OICCI President Waqar Malik said that the members of the chamber had full faith in the policies of Shaukat Tareen and they believed that he would be able to turnaround the country’s economy with his plan.

He said that the nine-point agenda of Mr Tareen for economic revival and the aspirations of the OICCI had the same direction. “This has boosted our confidence,” he noted.

“Tareen has shared his plan with OICCI members and we are confident that this would stabilise exchange rate and very quickly resolve balance of payments problem in next 30 to 45 days,” he elaborated.

He said that OICCI has also informed him about the issues confronting foreign investors including law and order and also submitted suggestions.—APP

 

[Neo]

Industrial output declines by 5pc​

ISLAMABAD, Oct 25: Pakistan’s industrial output declined by around five per cent in the first two months of the current fiscal year in the wake of international financial crisis, sending fears of massive layoffs, particularly in the electronic industries, officials told Dawn on Saturday.

Pakistan’s economy has not yet felt fully the consequences of the global crisis at this juncture, and it is hard to estimate their severity and duration, but some impact has already been obvious, like slumping in the industrial production and steady decrease in dwindling forex reserves.

Many sub-sectors of the large-scale manufacturing did not perform well during July-August, particularly electronic goods, indicating that the 6.1 per cent LSM growth target set for 2008-09 is unlikely to be achieved.

An official said textile sector is labour intensive and any drop in production or exports is signaling massive layoffs, particularly those people who are working on daily wages to feed the families.

Data compiled by the federal bureau of statistics showed that production of cotton yarn declined by 0.82 pc, cotton cloth 1.33 pc and power-looms 54.13 per cent during the first two months of the current fiscal year over last year.

Among the electrical production, refrigerators recorded a negative growth of 2.60 pc, deep-freezers 26.32pc, air-conditioners 6.39pc, electric bulbs 20.97pc, electric tubes 9.21 pc, electric motors 37.48pc, electric meters 27.60pc, switch gears 17.61pc, electric transformers 14.80pc, TV sets 5.06pc and bicycles 20.95 pc during the period under review.

Analysts said industrial production has been adversely affected by the crisis through both price effects that increase the cost of production and income effects that decrease the demand for products in the markets.

The sever power shortage and highest-ever increase in energy prices also further fuel the crisis, which led to cuts in production, particularly in the textile based industries resulting into lower exports.

It is believed that the trend indicates a declining move for the current fiscal, amid growing concern over the de-industrialisation trap. And the current declining trend or a flat rate of growth is the forecast for the next fiscal year.

Iron and steel production declined by 0.84pc, pig iron 10.35pc, billets 32.85 pc and HR sheets 12.44pc during July-Aug over the same period last year. However, billets production declined by 4.97pc.

In the automobile sector, production of busses declined by 39.35 pc, jeeps and cars 43.91 pc and motorcycles 4.40 pc, respectively during the period under review. These sectors and associated vendors also provide scores of jobs.

An official in the industry ministry said it is not clear how large and widespread the impact is. But it is believed that some industries might get benefit from the crisis, particularly those using domestic raw material.

But to avoid losses, some factories will have to increase their production prices which would ultimately lead to lesser sales, the official added.

The industrial growth had been shrinking for the last three years as it grew by 5.4 per cent in the year 2007-08 down from 19.9 pc growth recorded in the year 2004-05 owing to capacity constraints and high cost of doing business that resulted into closure of many units.

As a result of decline in industrial output, the import bill of consumer and electronic goods swelled during the period under review.

The slump in the industrial growth had greatly affected the export of commodities, particularly the textile and clothing exports which already declined from the start of the current fiscal.

 

[dr.umer]

UAE to invest $40m in Balochistan ​

ISLAMABAD, Oct 26 (APP):The United Arab Emirates (UAE) will invest $40 million in agriculture, irrigation, health and education sectors of Balochistan. According to Radio Pakistan, this decision was taken in a meeting held in Quetta between Balochistan Chief Minister Nawab Muhammad Aslam Raisani and a seven-member delegation of UAE headed by Minister for Investment Khadim Abdullah Al Dari.

The meeting was informed that the UAE government in collaboration with an international farming company- Al Dahra - would initially initiate a project of agriculture farming on 18,000 acres of land in Mirani Dam command area to cultivate wheat, cotton, pulses and other grains. Later,the cultivation area would be stretched over to 33,000 acres.

The work on the project would commence in the start of next year.This investment would provide employment to about 12000 jobless people of the area.

The Balochistan CM has approved the setting up of a high-level committee for finalizing the additional clauses of the agreement on behalf of the Balochistan government, which would be implemented in consultations with the concerned officials of UAE.

 

[dr.umer]

Govt retracts decision to remove electricity subsidy ​

27 Oct, 2008

ISLAMABAD: The government have differed its earlier decision to cut the subsidy on electricity by Rs120billion and pass it on to the masses following the immense pressure of countrywide strikes against the recent increase in power tariff and load-shedding.

The decision was announced by Minister for Water and Power, Raja Pervez Ashraf, at a hurriedly called news conference here on Sunday.

Anti-government protests over the power tariff and load-shedding issue are still being held on in different parts of the country despite the government's decision to cut the present electricity bills by 40 per cent by putting off the implementation from September of 31 per cent hike in power tariff approved by the National Electric Power Regulatory Authority (Nepra).

Ashraf said that earlier the government had decided to slash its Rs185billion annual subsidy on electricity by Rs120billion by bringing it down to Rs65billion. The government wanted to pass on the reduction in subsidy to masses, but had decided now to put off the decision, he observed.

In response to a question, the water minister said that the previous government had left Rs400billion in circular debt in the power sector in legacy for which the new Pakistan Peoples Party (PPP) led political government was paying the price.

He said this huge amount of circular debt had not only affected the supplies of furnace oil and gas to power generation companies but also took heavy toll on the power generation capacity of not only the independent power producers (IPPs) but also the functioning of the Water and Power Development Authority (Wapda) and distribution companies as well.

He also referred to Rs60billion outstanding loan released to IPPs a few days back which is believed to have helped in increasing power generation.
‘I appeal to the masses that these protests should stop now as the increase in tariff has not been implemented,’ he observed.

The water minister also claimed that some people also wanted to project their politics by fueling up the issue. He said those who had resorted to protests and were damaging the public and private property were not serving their country. He also appealed to politicians to not play politics on an issue that was created not due to the incompetence of the present government but the previous one.

He said the government needed some time to launch and complete some of the power generation projects on fast track basis. He said that he was confident that there would be no load-shedding in the country by the end of next year.

Ashraf said the government had made a roadmap which would focus on involvement of rentals, IPPs and Wapda power houses to generate maximum electricity to overcome load-shedding as well as handle future energy needs.

 

[dr.umer]

Microsoft Pakistan introduces lower prices for home users ​

26 Oct 2008

Microsoft in spirit of true innovation launched its "Fully Packaged Products" for the general consumer market aimed specifically at students and individual home users. The FPP offering introduces genuine MS Office in home and student editions at a price 40 percent lower than its former price.

The single full packaged product allows for licensed installation on 3 computers for the price of one-a benefit unique to the FPP. This promotional offer is being introduced to harbour greater interest and offer affordable solutions to the public.

The FPP launch marks Microsoft's global initiative to expand availability and access to genuine software in emerging markets and Microsoft Pakistan is determined to fulfil the company's vision to bring benefits of technology to one billion more people by 2015.

The FPP campaign has been launched after considerable groundwork and research into emerging markets. Prior to the launch, pilot studies were conducted in five emerging markets and the results yielded a high willingness of individuals to purchase genuine Microsoft products. The products that are directly engendered under the fully packaged product portfolio include MS Office home and student 2007; MS Office Student and Home Word; MS Office Home and Student Excel 2007; MS Office Home and Student PowerPoint; and MS Office Home and Student OneNote 2007.

The FPP products, backed by authenticity of Microsoft are free from malicious viruses and spyware that affect a majority of desktops around the country. According to Global Software Piracy report, Pakistan uses 84 percent pirated software out of which 25 percent contain viruses and spyware thus exposing us to IT inefficiencies.

Country General Manager Microsoft Pakistan, Kamal Ahmed, addressed the gathering and emphasised the need and benefits of virtualisation for businesses in Pakistan. He said, "At Microsoft, we are striving to increase the accessibility to genuine products that are specifically designed to cater to the needs of the public. The fully packaged products are being offered at a price 40 percent less than its former price which makes it all the more appealing and affordable to the masses."

In addition he also said, "Our FPP products will help us establish an IT ecosystem within the country conducive to economic, personal growth and free from pirated and counterfeit software. We are sure that our FPP products can bring competitive advantage to not only our business but to our country by leveraging our nation's human asset. Additionally, secure and genuine softwares from Microsoft will equip Pakistani individuals with the necessary tools to combat global competition in arenas of IT and other commercial avenues".

Saeed Sheikh, Country Manger eSys Pakistan, said "Genuine software technology has tremendous potential in our country where 84 percent software used is pirated. This renders the IT infrastructure vulnerable to inefficiencies and other malicious content such as viruses. By bringing the best from Microsoft and building upon its knowledge and capabilities we can surely capitalise on this potential and capture a substantial market in Pakistan".

Sheikh also stated, "eSys Pakistan is distributing Microsoft's FPP products in Pakistan keeping in view the encouraging results and favourable demand of the product". The launch of the FPP products will be followed by initiatives designed to maximise reach and visibility and also awareness campaigns among the masses. The FPP products will initially be available on selected stores but this will increase with the passage of time.

 

[Neo]

Do we need a bailout plan?​

Pakistan’s economic predicament is becoming grimmer. Although Pakistan’s year-long economic crisis is largely self-created, the looming global financial crisis is also a part of the problem.

With so much uncertainty hanging over the world’s creaking financial structure, there are so few countries or institutions which want to part with cash, even though they may be sitting over piles of them.

The country is focused almost exclusively on how it would be able to service the $40 billion plus foreign debt, which is more than 10 per cent higher than when Musharraf took over, than to put food on the floor (on which most people eat) of its poverty-stricken bottom 40 per cent of the population.

The primary concern of our economic managers seems to be on how to save Pakistan from the threat of default on its foreign loans, which must be paid by the year’s end. The amount being discussed is in the region of $3-4 billion of immediate payments, although the total financing gap for the balance of payments was projected at around $7 billion for the fiscal year ending June 30, 2009.

The immediate requirement is less than three per cent of the GDP and equivalent to the remittances it receives every year from its workers and professionals abroad. It is something which the nation could easily adjust to if people had faith in their rulers and if they could be mobilised to make sacrifices equitably, even though the poor are already so heavily burdened that any additional sacrifice on their part can’t be suggested with any seriousness.

Unfortunately, this is not likely to be the case because the elites are unwilling to give up their gains acquired during the Musharraf regime. What is more likely is that the current budgetary deficit of seven per cent of GDP will be slashed to four per cent, largely by curtailing the expenditures likely to benefit the poor – such as food and fuel subsidies and social expenditures – while those benefiting the rich will be maintained or even increased.

The only thing being debated now is whether such a reduction in the budget deficit will be made under the auspices of an IMF agreement, which would include other contractionary and restrictive provisions.

The government of Asif Ali Zardari is apprehensive of concluding any agreement with the IMF which would compromise his party’s populist image and would further aggravate the suffering of the poor and lead to even greater unrest on the streets. It seems that the IMF is willing to recognise this political difficulty and get Zardari on board for longer-term reforms by bailing the country out from the brink of the precipice it stands at now. For that, the government is hoping that “Friends of Pakistan” consortium meeting in Abu Dhabi next month will approve a larger package of, say $10 billion, for stabilising the economy over the next two years (or seven quarters).

Pakistan has been in this kind of situation several times in its brief history, the last time being the period after its nuclear testing in May 1998 when the US imposed sanctions on it. It ended up by freezing over $12 billion of foreign currency accounts, much the same way the $12 billion of foreign exchange reserves have been put to as a result of a combination of political instability, economic mismanagement and deliberate efforts to ruin the economy.

It is now well-known that bailouts create serious moral hazard problems, never succeed in reforming and rebuilding the debtor economy. What is even more troubling is that bailouts result in rescuing those economic actors who are the primary cause of the default or who have most benefited from the foreign loans, which the country is unable to service.

The rest of the nation, especially the poor, who have played no part in foreign borrowing or have benefited, are being denied the attention they deserve from their elected representatives in the solution of their pressing economic problems, which have steadily escalated to unprecedented levels since the beginning of this year.

If the IMF-sponsored agreements are signed they will, notwithstanding the usual assurances about safety nets, they are likely to bring much more misery to them. The scare being created about the consequences of a default is highly exaggerated and is really intended to letting the nose of the foreign camel in the tent.

Many Latin American countries during the 1980s debt crisis and since have survived after debt default and have come out none the worse for it. What Pakistan needs at this time is not a contraction of public expenditures, except non-development, but an expansion of employment-generating development and social protection expenditures, which are likely to be curtailed in the event of an IMF-supervised package. A recent IMF working paper evaluates empirically four types of cost that may result from an international sovereign default: reputational costs, international trade exclusion costs, costs to the domestic economy through the financial system, and political costs to the authorities. It finds that the economic costs are generally significant but short-lived, and sometimes do not operate through conventional channels.

It is only the political consequences of a debt crisis which seem to be particularly dire for incumbent governments and finance ministers. If default is so important to the political class, especially the incumbents, it would behove them to pledge some of the prime properties and other assets owned by them in UK, Dubai and elsewhere, as a pledge against the amount due to avoid default.In many ways, Pakistan’s debt trap is a mirror-image of what has been happening to the US economy in the past decade. Both economies have been driven by the stimulus of foreign inflows and large current account and budget deficits that have provided the growth momentum to their economies.

At the end of the economic booms experienced during this period, both are finding themselves in grave difficulties, because the booms became unsustainable. Pakistan being a much more narrowly based and less highly leveraged economy was less susceptible to the financial crisis that the United States faced when the housing bubble burst a year ago.

It was however much more vulnerable to the extraordinary rise in oil and food prices earlier in the year, hurting the poor much more severely. Another common characteristic of the growth pattern of the two economies was the high inequality that it gave rise to in both countries. The entitlements of the poor, in terms of health, education and social services – albeit at very different levels – have been curtailed in both countries.

For almost a decade, both economies have been defying some of the basic economic laws with impunity, largely due to fortuitous global and domestic factors that have enabled the more well-heeled sections of society to enjoy a level and pattern of living that is well beyond the collective resources of their economies.

Both countries have one of the lowest savings rate in the world. While the United States has so far been bailed out by the rest of the world, especially China, East Asia and the oil-producing countries who have invested their current account surpluses in US securities and assets, Pakistan has run out of reliable sources of foreign savings to complement their low domestic savings rate. The current shock to both economies may well pave the way for corrective action to pursue sustainable paths of development for them in future.

 

[Neo]

Return of a semblance of stability​

THE days preceding the October 17 announcement of market- stabilising emergency measures by the Governor of the State Bank of Pakistan reminded many of us of the scenes witnessed soon after May 28, 1998, but by responding boldly (though belatedly) to the challenges, the SBP has revived the market sentiment.

The two per cent immediate cut in Cash Reserve Requirement (CRR) and another one per cent effective November 15, and exemption of deposits with life spans of one year and above from the Statutory Reserve Requirement (SLR) helped all market players; with banks less restrained, they too heaved a sigh of relief.

Along with the one per cent relief given on October 11, the total CRR relief in October implied injection of Rs102 billion into the system. But during July-September, bank deposits fell by Rs232 billion and Rs54 billion worth of reserves freed by this fall had already flown into the system. The post-October 17 injection therefore added only Rs48 billion – too little at the start of the peak borrowing season.

But the relief in SLR has returned to banks over Rs125 billion of T-Bills for collateralising and borrowing there against. With these bills, banks, that couldn’t borrow from other banks on clean basis, can do so now. A more significant relief is the doubling of PIB’s share in the SLR. The bonds issued in 2004-05 were a burden; besides being loss-making investments, they were also ineligible for collateralisation.

Another important relief is the acceptance of the demand for converting short-term loans secured by shares into one-year term loans to help postpone sale of shares till their prices rise realistically. This will slowdown a slide in share prices (and in foreign portfolio investment) that is feared after removal of the lower lock on share prices, but could block scarce bank credit in these loans.

Together, these measures have lowered inter-bank lending rates significantly (down to four per cent), and prevented money-centred banks from benefiting for too long from the liquidity crisis. The overall effect has been the return of a semblance of stability, which has also strengthened the rupee in the inter-bank as well as the open market, and discouraged dollar hoarding.

In spite of all this, this scenario won’t last without long-term stabilising measures. To begin with, despite lowering the CRR and SLR (that could boost banks’ capacity to lend up to 75 per cent of their deposits), the SBP’s lowering of the loan-deposit ratio to 70 per cent implies contracting credit supply in a quarter known for high credit off-take triggered by cotton buying.

Second, according to the latest SBP statistics, in the next quarter, the State Bank will sell back to banks close to $2 billion under maturing swap deals. This will suck out from banks nearly Rs160 billion in counter-value. As it is, there isn’t enough liquidity in banks; unless bulk of the swaps is rolled-over, the twin effect of the credit hike for cotton buying and payment of counter-value of the swaps could again strain bank liquidity.

Cutting the CRR along with lowering loan-deposit ratio (by March 31, 2009) implies that fresh loans be funded by fresh deposits sucked out of the money in circulation. That’s prudent. Of the bank deposits withdrawn so far, over Rs142 billion went into money supply raising it to a whooping Rs1.14 trillion.

But with inflation eating into the capacity to save and mounting demands by trade and industry for lower lending rates, it would be hard for banks to offer attractive deposit rates and also cut lending rates. In this setting, banks can’t earn the high interest rate spreads that they got used to, tragically, at the expense of long-term economic interests.

Vacation of the stay granted by the SHC against the CCP action against banks on the charge of cartelisation manifests that banks were less than fair in compensating depositors as well as in pricing loans. During the past four years, it was repeatedly pointed out that bank profitability was eating into the cost efficiency of business and industry but to no avail.

Now banks must provide borrowers the life support of cheap credit. Banks don’t have a choice. It is their biggest challenge and obligation that remained on the backburner for too long. If they want to earn ‘fair’ profit during the coming recession, they must do so by helping their borrowers regain their competitive strength and, within banks, by increasing resource productivity, not interest rate spreads.

But indications are that they are now more concerned about safety of risk assets. That’s why on October 22, they invested another Rs60 billion in T-bills rather than lend to business and industry. Banks must realise that long-run survival of the economy is in everybody’s interest and all stakeholders must strive for a balanced (not skewed) sharing of the benefits.

Striking that balance, which we ignored under self-centred leadership in institutions, is now imperative. Not doing so could prove disastrous for all stakeholders because of a systemic failure triggered by large scale-failure of businesses. Reduced or expensive credit to business and industry to insulate banks from loan losses could lead to business closures.

Indications are that this trend is developing and external pressures may force a rise in mark-up rates. To prevent this tragedy from crystallising, banks must mobilise huge amounts of a wide variety of fresh domestic resources to bring down the overall cost of deposits instead of either reducing credit or making it expensive. This is what the SBP Governor hinted at in her October 17 press conference.

Both banks and the SBP overlooked for far too long the fact that, if stiffly regulated, support services like risk-rating, advisory, custodial, and asset valuation, can extend vital assistance to banks in containing credit risk. However, they remain weakly regulated instead of being properly licensed (separately for each business niche) by truly competent authorities and supervised very effectively. If businesses aren’t helped, the build-up of slow-moving loans will perk-up loss provisions and greatly dampen the pace of profit growth witnessed during 2004-07. This could hurt investment sentiment if banks were to rely on issuing stock dividends and right share issues to increase bank equity, year-after-year for the next four years, as envisaged by the SBP’s over-optimistic capital adequacy demands.

The merger of KASB Bank and Atlas Bank, and news about an investor group headed by Mr Hussain Lawai of the MCB fame acquiring (and logically thereafter merging) MyBank and Arif Habib Bank to create more viable banks out of synergy, is a positive development. There may be more mergers, but based on recent experience, the SBP must not lose sight of the hiccups the process involves.

 

[Neo]

Deepening foreign exchange crisis​

By Dr Parvez Hasan

THE deepening foreign exchange crisis is all too visible. The sharp deterioration in world economic prospects, much slower growth of output and trade and likely disruption of private capital inflows from western markets add to Pakistan’s difficulties.

Despite some measures to improve the macroeconomic situation over the last six months, the grave underlying disequilibrium in the balance of payments persists. A comprehensive plan to deal with the situation has yet to be announced by the government, though a distinguished group of economists, led by Dr Hafiz Pasha has finalised a report for the Planning Commission. Meanwhile, urgent efforts to raise large sums of money from friendly countries and international institutions have met with only limited success as yet.

How big is the balance of payments crisis? What are its causes? What can be done to bring down the large macroeconomic imbalances and arrange necessary financing without hurting economic growth too much?

The current account balance of payments deficit during 2007-08 totalled $14 billion or over nine per cent of GDP, surpassing all records. The SBP data for the first two months of current fiscal indicates that the deficit was moving at an annual rate of over $15 billion.

The large current account balance of payments also denotes a sharp worsening of the saving – investment balance. In 2007-08 nearly 45 per cent of investment was financed from foreign savings, another record.

There is little doubt that the present government inherited a very difficult economic situation. The previous regime ignored the need to adjust to severe external shocks notably the rise in international oil prices. The rise in the oil import bill from $4.7 billion in 2004-05 to $11.4 billion in 2007-08 alone has meant a loss of nearly five per cent of GDP over the last three years. Though the average GDP growth rate during 2005-08 was 6.5 per cent per annum, the national income growth adjusted for the terms of trade loss was only 4.5 per cent per annum.

The proper response to this evaporation of economic gains should have been speedy energy price adjustments, a change in the expansionary fiscal stance, a tightening monetary policy, and selective restraint on new public investments. This was not done. Growth in both consumption and investment far outstripped the availability of domestic resources. Nearly 40 per cent of the increase in consumption and investment over 2006-08 was financed from external resources including sale of assets to foreigners.

The new government is scrambling to mobilise financial resources to fill the large balance of payments gap without a further catastrophic drop in foreign exchange reserves. But short-term efforts cannot succeed unless both the international community and citizens are convinced that the government has a clear plan for restoring financial stability in the medium-term.

The attitude of citizens is important because unless their confidence is restored capital flight may continue.

The current account balance of payments needs to be brought down to a sustainable level of four per cent of GDP in 2-3 years and the reliance on external resources to finance investments should be gradually reduced to less than 20 per cent. An urgent goal of economic policy should be to reduce the deficit in 2008-09 to $ 8-9 billion or 5.5- 6 per cent of GDP. This might appear an impossible goal because it would mean cutting the deficit almost into half in the remaining part of the year from the level in the first quarter. Fortunately, the recent decline in international oil prices combined with domestic energy price adjustments could help cut the annual oil bill by as much as $2- 3 billion. Still a great restraint on both public spending and private consumption is necessary.

Despite large energy price adjustments during the last six months, public spending has not been brought under control. Though fiscal deficit figures for recent months are not available, the SBP data indicates that net government borrowing from the banking system was Rs131 billion during July-September 2008. In addition, credit to public sector enterprises increased by Rs55 billion. Thus public sector bank borrowing is running at the annual rate of over Rs700 billion or well over six per cent of GDP. The fiscal deficit obviously must be larger despite the reported improvement in government revenues last quarter.

Government borrowing from the State Bank in July-September reached record levels, much above the annual rate in 2007-08, as the government retired scheduled bank debt. While inflation caused by the rise in international commodity prices is likely to be reversed, monetary expansion has become a real threat for future inflation.

Expansion of public expenditure in critical areas such as recently announced income support programme for the poorest households and food grain subsidies for the low-income household are essential, the income support programme as announced would cost less than 0.4 of GDP. All other public expenditure requires careful scrutiny, consolidation and cutbacks.

After no growth in the 1990s, the real non-interest public spending increased by around 70 per cent over 2004-08. After such a period of rapid growth, it should be possible to eliminate waste and prune low priority expenditures without adversely effecting economic and social goals. All current expenditure (including defence) and development spending should be subject to review. Development spending should give priority to job creating short -gestation period projects.

Expenditure curtailment efforts must be combined with the renewed efforts to tax the well-to-do who have been the main beneficiaries of the recent economic boom. So far neither the governing elite nor the government has shown much appetite for mobilising larger revenues from taxation on high income earners and much under-valued property and closing the loopholes provided by absence of taxation on agriculture and capital gains. The present financial crisis must be used not only to mobilise additional revenue equal to at least two per cent of GDP over 2-3 years but also to ensure that basic unfairness of the system in which the rich substantially escape the tax net, is at least partly rectified.

A supplementary budget might be needed to implement new taxation and expenditure decisions.

Resistance to additional taxation would be strong; large increases in food and energy prices are cited as causing severe hardship. The government and the society have an obligation to help the poor who have been hurt the most. The income support programme should be even larger. However, the government cannot protect everybody in a situation where the gap between domestic spending exceeds resources by nearly 10 per cent.

Restraining consumption is always painful. But it must be recognised that during the last two years, average real private consumption grew by 10 per cent per head and as a large segment of the population apparently did not share in this increase, the gains for the top 10-20 per cent of the households must have been very sizable. This is the group that can afford belt tightening the most. Monetary incentives for increased saving by all can and should be strengthened by ensuring that depositors and savers receive positive real interest rates.

Even with very strong economic adjustment, $12-15 billion for net resource inflow will be needed for 2008-09 not only to finance the current account deficit but to restore the foreign exchange reserves at least to the end June 2008 level and preferably to the February 2008 level of $14 billion. For the subsequent two years, another $12 billion annually is likely to be needed.

It is hard to see how such a large package can be put together without the help of the IMF. There should not be any loss of prestige in going to the IMF provided the essential economic policy package is strong and home grown and the IMF agreement ensures a revival of the growth rate from say four per cent this year to six per cent in a couple of years.

Despite a dismal financial situation, Pakistan can restore high growth by focusing on agriculture, small and medium industries and exports. The exchange rate depreciation has strengthened competitiveness as recent export recovery suggests. Even though the international trade conditions would be tough especially for textiles and clothing, there remain tremendous opportunities in exports of other manufactured goods in which the country has virtually no world presence. Meanwhile, opportunities for import substitution in both agriculture and manufacturing have grown.

However, the fundamental solutions to our longer-term economic problems continue to lie in better governance, greater equity in public policies, higher productivity through investment in human capital, and last but not the least a culture that rewards, hard work, savings, and merit and punishes wrong doing.

The writer is a former chief economist of the World Bank.

 

[Neo]

Diversifying exports​

EFFORTS are on, both at the government and at the private level, to explore new markets and also to consolidate positions in places where Pakistan has a token presence in export volumes, following the shrinking of the US and EU markets hit by economic slump.

For long, the EU and the US absorbed as much as 40-45 per cent of Paskistan’s total annual exports and remained as the main suppliers of capital goods. But during the last decade, Pakistan slowly diversified its export markets and signed Free Trade Agreements (FTAs) with China, Malaysia, Mauritius and Sri Lanka. A proposed FTA with US has been a subject of periodical bilateral consultations over the last few years but with no outcome.

With market diversification, the exports of non-textile products rose by more than 24 per cent in the first quarter this fiscal year. While the textile sector seem discouraged by the withdrawal of research and development subsidy, exporters of leather and leather products, sports goods, surgical instruments, cutleries, furniture and a variety of other assorted items, have grabbed the opportunity offered by rupee depreciation, and they are all set to push their foreign sales in different markets of the world.

Textile exports were down by five per cent in the first quarter 2008-09, mainly because of the economic meltdown in the US and EU, forcing many to look elsewhere. ‘’My next destination is South America,’’ says Iqbal Ibrahim, Chairman All Pakistan Textile Mills Association (APTMA) who mentions Brazil, Mexico etc as other promising markets. ‘’Yes, there are logistics and freight issues involved in export business, but then no business in the world is problem-free,’’ he maintains.

Akbar Sheikh, a prominent APTMA leader from Lahore looks at China where textiles can have a market. With increased prosperity there, the labour cost is rising, pushing up the production cost and offers opportunities for export of selected textile products. ‘’We have generations-old relationship with many Hong Kong businessmen who would serve as a springboard for an export drive in China mainland’’ he said. “If the government helps textile exporters in resolving some of logistics problems, we can generate a few billion dollars from exports in such non- traditional markets, ‘’ Akbar added.

Aziz Memon, a leading garment manufacturer and exporter does not mind, ‘’collaborating with competitors’’ in new markets. He was obviously referring to Indian businessmen who are found in many non-traditional markets such as, South America, Africa and Asia and who may consider to join hands with their Pakistani competitors in the marketing of selected textile products.

Pakistan’s declining dependence on the US and EU markets was more than visible in 2007-08 when exports to the US came down to $3.72 billion from $4.18 billion a year ago. The US share in total exports was also down to 19.5 per cent in 2007-08 as against almost 25 per cent in 2006-07. In the current fiscal, exports to US are likely to further come down because of fall in value as well as volume. UAE—the hub of cross-country trade-- has shown almost 50 per cent jump in imports from Pakistan amounting to over $2 billion in 2007-08.

The export is handicapped because of its very narrow base, consisting hardly of 1,200 products as against the trading of over 5,000 products in the international market. ‘’Right now we are striving to get our due share in the international ‘halal’ food business that is controlled to the extent of 80 per cent by non-Muslims,’’ said Syed Mohibullah Shah, the Chief Executive of Trade Development Authority of Pakistan (TDAP). While trying to explain the strategy for diversifying the expanding the export base. Pakistan, he said, has all the potential to offer branded ‘halal’ food products.

‘’Our focus is on value addition and branded products.’’ Shah has held. a series of meetings with businessmen recently in which his emphasis was on discouraging sale of agricultural raw material as far as possible; and instead to go for industrial processing, hygienic packaging and obtaining a number of products from a single agriculture produce. ‘’There are bright prospects of harvesting 24-25 million tons of wheat next spring,’’ he said, which should make at least one million tons of wheat available for export sometimes in May or June next year. ‘’But our strategy is to export bakery products, confectionary items and a variety of cookies from wheat surplus rather than exporting it in raw form’’, he said. Pakistan’s confectionary industry has expanded considerably in last decade and has ample potential to enter export market in a big way.

The UAE and Saudi Arabia have a big food import bill and are eyeing Egypt, Pakistan and Sudan as their sources of food requirement. The UAE investors have indicated their plans to acquire huge farms in Pakistan to produce grains, fruits and vegetables and even dairy products. In the early eighties, Saudis invested in a livestock farm at Mianwali but suffered heavy losses because of a lack of entrepreneurship and managerial skills of their local partners. Official planners are considering this option for export.

A glaring example of market diversification is the seafood export. For long, Europe remained as the main market for food, that fetched about $250-300 million a year. For the last few years, the EU de-certified Karachi fish harbour because of its “unhygienic conditions” and put a ban on fish import.. ‘’We are now exporting fish of the same volume with better prices to Asian countries,’ the TDAP Chief Executive informed. Plans are in hand to give a clean look with hygienic environment to Karachi Fish harbour, upgrade local fish industry and modernise fishing boats. ‘’We want to regain our share in European sea food market and would rather like to improve it and at the same time further push up our presence in South East Asian and Middle Eastern countries’’, he said.

New markets and new products are the two main pillars on which the future export policy is being planned. Russia has already been targeted for future market exploration as its 300 million population has much more purchasing capacity because of oil and gas earnings. A delegation to Moscow is being planned sometimes in December/January.

Depending on reports from commercial counsellors from East European countries, Pakistan’s proposed trade delegation may include Ukraine and other East European or Central Asian countries in its itinerary. China and East Asia are other target markets. Minerals and agro-based products are set for enlarging Pakistan’s export product line in future. Pakistan is in rich minerals but its exploitation system needs to be modernisd. The last mineral policy was made in 1995 and preparations are afoot to revamp it under the changing conditions.

 

[Neo]

Why an interim industrial relations bill?​

THE Pakistan People’s Party has adopted an interim Industrial Relations Bill- 2008 in the Senate to replace the Industrial Relations Ordinance-2002.

The interim bill would be replaced in the next 18 months or two years by a permanent new Industrial Relations Act, say press reports. Any industrial legislation provides a legal foundation upon which labour-management relations are built with balanced rights and interests while the government acts as a guarantor and a watchdog to ensure industrial peace and harmony.

The need to replace the Industrial Relations Ordinance-2002 (IRO-2002) is legitimate for it is a demand of millions of industrial workers. While the effort towards that change is in the right direction, the way it is being pursued through an interim bill would later pave the way for legal complications which are easily avoidable.

The elected representatives have a chance to come up with a piece of legislation which is efficient and enjoys the trust of all the parties concerned. But they appear to face the same pitfalls as their predecessor did. However, the following points should be considered in order to have a clear approach towards a new piece of legislation:

First ,if the IRO-2002 has to be discarded, the Industrial Relations Bill-2008 would become legally complex, giving rise to needless discussions, because it is not a new bill with fresh contents. Sensing the popular demand of restoring IRO-1969 and the need to evolve a more permanent piece of legislation in another two years’ time, legislators are using IRO-1969 as a base for new interim bill while not fully restoring it with a number of amendments. This approach would be unnecessarily a convoluted exercise giving rise to a lot of confusion. Why not simply add various amendments to the IRO-2002? It would be easier to amend the existing legislation with certain favourable features of the IRO-1969.

Second, after passing the interim bill based on IRO-1969 or IRO-2002, the judicial explanation and interpolation of various terminologies and case-laws have to be developed and new disputes to be settled all over again. This will go on while the clock will keep ticking for two years. Under the given circumstances, it is difficult to say when or whether at all this piece of legislation would get materialised.

Third, it is not clear whether the new interim bill would completely restore the IRO-1969. But if it is so, it will also revive a number of provisions which were obsolete even when the legislation was in force. Some of these are: definition of a workman (Sec 2), archaic structures like Workers’ Participation in Management and Joint Management Board (Sec 23-B and C), and provision of “compensation in lieu of reinstatement” in case of worker is aggrieved by his wrongful termination from service (Sec 46(5).

On the other hand, if the new interim bill would not fully restore the IRO-1969, rather new features would be added to it, obsolete sections would be removed and certain other sections like the forum of Labour Appellate Tribunal (Sec 38) to provide “speedy justice” would be revived. Between 2000-2002, the debate was going on the promulgation of new IRO which eventually became IRO-2002. It was suggested by all stakeholders, including this writer, to eliminate the additional legal forum of Labour Appellate Tribunal for “speedy justice” in case, other measures were to be adopted. Unfortunately, Appellate Tribunal was eliminated without adopting any of the recommended measures, nullifying all its benefits. Once again, Labour Appellate Tribunal forum is being revived for precisely the reason it was eliminated.

Fourth, The existing IRO has been in operation for the last seven years and whatever harm it caused to industrial peace and harmony has already been done. If it is allowed to operate for another two years, there will not be any harm on continuous basis. Nor there is any legal vacuum at the moment which must be filled with something else. All stakeholders have already suggested numerous amendments in it including the ‘conclusions and recommendations’ of the ILO’s committee on Freedom of Association.

All these amendments and recommendations once incorporated in the IRO, 2002 would eliminate almost all violations, complaints and sources of tension. Hence the easiest path for the legislators to follow is to amend the existing IRO-2002.

The judiciary has developed thousands of case-laws over the last seven years which are valuable assets. In future, negotiations can continue among all stakeholders until a new permanent piece of legislation is written.

 

[Neo]

The fear of unemployment​

IF 2008 can be described as a year of inflation, 2009 may turn out to be a year of unemployment unless the government gives up its habit of waiting for an issue to assume the proportion of a crisis, and re-energises the economy to nip the problem in the bud.

Even people not conversant with economics understand what it means when nan (bread) sells at Rs7-10, up from Rs3-5, in many parts of the country. It is not difficult to understand the impact of the hike in basic food items on the family budget of the segment of population that spends 60 per cent of its income on kitchen items. Currently, the average food inflation at 35 per cent is an all-time high.

While the citizenry is reeling under the pressure of inflation, the problem is being compounded by lay-offs and retrenchments or the fear of job loss in the days ahead.

There is no firmed up data available, but scattered information suggests that the slow down in the economy is now taking its toll on an already uncomfortable employment situation in almost all categories.

No consolidated figures of people pushed out of regular work over the last six months are available and the official figures put unemployment at 7.5 per cent in fiscal 2008. This rate is higher by one per cent over the previous year.

An informal survey by Dawn, however, reveals that the situation is alarming in many key sectors that include some star performers that dominated the economic horizon during Musharaf/Shaukat Aziz regime. There are reports that indicate that problem is brewing in financial sector, real estate business, media, supporting services in capital market, currency business, automobile, pharma and the ailing textile industry.

Javed, 27, joined a media group three years back as a member of supporting staff at a salary that far exceeded his expectations at that time. He was shunted out along with a few dozen others this month as media houses struggled to readjust to difficult times by cutting costs.

A few marketing executives in private media outfits confirmed that the flow of advertisement income has come down by at least 10 per cent in case of leading groups as compared to the last year. The situation is worse for smaller companies. There are unconfirmed reports that at least two TV channels have been closed down and a few others are seeking mergers and sell-offs.

“The advertisement budget is the first to come under axe in situations of distress and the last one to increase when a business is booming”, said a frustrated marketing professional. “If business shrinks, the employment-base in an organisation also shrinks. It hardly comes as surprise to me if media groups are trimming to become leaner. I expect many more lay-offs from media organisations across the board if the current economic environment persists”, a corporate head responded from his office in Lahore.

The financial sector, currency, capital and real estate markets are all depressed. The mutual funds and asset management firms are involved in an exercise to contain their losses. The situation is worse for currency dealers who reportedly have fired a sizeable number of their staff. The real estate and capital market have an all-time low turnovers for the last few months driving small time brokers out of the rings.

Car sales during July-September have come down by 40-50 per cent for many companies. The situation has impacted adversely on the car vendors, who have responded by cutting on their staff in Karachi and some cities in Punjab.

“I used to make a decent salary a year back. There was more work than the company could handle in the market. The overtime used to supplement my regular salary. The situation has changed drastically over the last one year as orders from major companies have declined. First, overtime was stopped, then contractual workers were shown the door, now the jobs of even regular workers are at risk”, said Tauqeer, father of five school-going children, an experienced automobile expert engaged in the automobile vendor sector.

“The drastic drop in sale of cars and motorcycles has led to closure of some auto vendors while others are struggling to keep afloat with fewer workers”, said owner of a small workshop.

In banking, there are no reports of noticeable retrenchment but the mood is understandably grim. The trend of poaching and jumping jobs in an upbeat sector has disappeared and people are worried for their future. “The process of mergers and acquisition, now taking place, entails human cost. Some people are shunted out”, said a senior banker watching developments from close quarters.

There are some reports of closure of 50 per cent of textile ginning units in Faisalabad and to a lesser extent, in some other cities. Dilshad, an experienced housemaid, said that her family paid an agent Rs75,000 to arrange placement for her son-in-law in the Middle East. “For the last eight months Javed has not been able to find a regular job. You cannot let young men wander around and become useless. When my daughter got married, he was working in a garment factory but the factory closed down and he was rendered jobless eight months back” she said.

Three major multinational pharmaceutical companies - MSD, Orgenon and BMS - have left and half a dozen are rumoured to be in the process of winding up their operations. There is anxiety in workers over terms of employment and great concern over their future in the industry. Some trading companies also confirmed that many firms are troubled as increase in customs duties has led to reduction in demand of imports in certain categories.

Are there some inherent anti-workers biases in corporates that induce them to retrench them at the first opportunity, a local tycoon was asked?

“Not at all, retrenchment of workers is a very difficult decision for any entrepreneur and is taken when it becomes unavoidable. We do not run welfare trust. I can only hire if there is need. Besides, we cannot cut on fixed cost, so cost on variables has to be rationalised when a business comes under stress”, said a business executive in Karachi. Syed Khursheed Shah, federal minister for labour and manpower and overseas Pakistanis, was not available for comments. Malik Asif Hayat, secretary labour and manpower, however, was not too worried as he expected mild impact of the global economic upheaval on the domestic economy. He said textile sector was almost unaffected that employs the highest number of workers.

He dismissed the view that unemployment would assume serious proportion in the near future; besides, he felt, that the elected government was alive to the problems facing the country. “The government’s economic revival package will be announced shortly. It concentrates on pumping huge sums of money into the economy through massive public sector development programmes (PSDP). It will take care of many problems being faced by the economy,” he said confidently.

 

[Neo]

'Expo-Pakistan 2008' starts today​

KARACHI (October 27 2008): The country's largest trade show, 'Expo-Pakistan 2008', which is expected to receive around 500 foreign visitors and expatriates amid an airtight security, is being held from October 27 to 30 at Karachi Expo-Centre. The Trade Development Authority of Pakistan (TDAP) is the official organiser of the show, which will be inaugurated by Federal Defence Minister Ahmed Mukhtar.

He will also hold a press conference. Although, there will be no seminars or workshops during the event, the participating companies will sign MoUs. Rafeo Shah, Director Expo-Pakistan, TDAP, told Business Recorder on Saturday that the government has done the spadework for watertight security for the event.

He said that assistance has been sought from police, rangers and Sindh home department to provide maximum security. "The government has taken maximum precautionary measures to ensure sound security to the participants of the show. "Participants are also visiting from Britain and the US," he added.

Asim Siddiqui, Chief Executive Officer of Pegasus Consultancy, event manager, said that intelligence and law enforcing agencies would be responsible for security. He said that about 500 visitors including European, South and North American, Middle and Far East have confirmed their participation.

"The major countries are UK, Spain, France, Japan, Arab countries, China, Brazil, Mexico, US, Bangladesh, Sri Lanka and Morocco are taking part besides the expatriates. Bangladesh will represent the largest delegation in the event," he said.

Over 400 exhibitors will displays their products including textile garments, sports, surgical instruments and food items, he said, adding that three foreign exhibitors - two from Sri Lanka and one from Poland--will also display products. Over 650 stalls are being set up, while many interested parties are on the waiting list.

TDAP has given maximum concessions on stall bookings to participants from far-flung and underdeveloped areas of the country including Azad Kashmir and interior parts of all provinces to increase the volume of country's exports.

 

[Neo]

UK businessmen keen to invest in Pakistan: Sindh chief minister informed​

KARACHI (October 27 2008): Pakistan High Commissioner in Britain, Wajid Shamsul Hassan, called on Sindh Chief Minister, Syed Qaim Ali Shah, here at the Chief Minister House on Sunday.

They remained together for sometime and discussed matters of mutual interests. Wajid Shamsul Hassan informed Syed Qaim Ali Shah that with the people's government coming to power in Pakistan, our ties with Britain have strengthened further. He also informed the Sindh chief minister about the interest of the British businessmen regarding investment in Pakistan.

Qaim Ali Shah on the occasion apprised Wajid Shamsul Hassan of the projects that have been initiated in the light of the manifesto given by Shaheed Mohtarma Benazir Bhutto. He also informed that the government has started Shaheed Benazir Bhutto Youth Development Programme whereby over 40,000 youth will be imparted technical training and in the meantime they will be given stipend in the range of Rs 4,000 to Rs 10,000.

 

[Neo]

Reduction in load shedding from November 1: Pepco​

LAHORE (October 27 2008): Pakistan Electric Power Company (Pepco) will reduce the daily load shedding by six hours from 1st November, Pepco General Manager Tahir Basharat Cheema told Business Recorder here on Sunday. He said that ongoing 10 to 12 hours daily load shedding will be considerably reduced to pre-Ramazan level during the next four days.

He said, "On the orders of President Asif Ali Zardari, gas companies have assured Pepco of supply of 90 MMCFD gas for its power plants. Besides, he said, Pepco will have additional hydel power due to increased outflows from Mangla dam from 8,000 to 25,000 cusecs and thermal power Muzaffargarh power stations will also start operating soon.

Talking about the basic reason for the severe load shedding in the country, he said that four independent power producers (IPPs), Hubco Power Plant (300MW), AES Power Plant (350MW), Uch Power Plant (510MW), Fauji Kabirwala Power Plant (75MW) were closed for annual maintenance and Pepco had to face 1,235MW power shortfall because of closure of these IPPs.

"The total availability of power, at present, is 9,500 MW against the demand of 14,500 MW which caused a short fall of 5,000 MW in supply and demand" he elaborated.

He said when the IPPs start production of 1,235 MW electricity in a couple of days the Pepco would be able to further reduce the duration of load management to the pre-Ramazan level from November 01, 2008. He said that in this regard, help of customers was sought for conservation of energy, which could result in reduction of demand leading to further reduction of power outages. He said that conservation was considered as a very important factor, as this would create an enabling atmosphere till such time that new power plants join in, whereby power deficits and ensuing load shedding would be banished by the end of 2009.

He said that the new power generation facilities would comprise of rental plants, IPPs, small hydel stations in the public sector, two combined cycle high efficiency power plants again in the public sector, fast track PPIB sponsored generation and wind power arranged by the AEDB. All these plants would be operational during the period 2008-10.

He said that 20.5 million customers of Pepco had been facilitated by the government to pay only 60 percent of their revised tariff bills from Monday without any late payment surcharge.

"In order that the customers do not face any problems, the field officers of the distribution companies would personally visit the banks to facilitate the customers" he added. He said that when the government takes a decision on the recommendations of the committee headed by Federal Minister for Water & Power Raja Pervez Ashraf, necessary adjustments would be made in the electricity bills receivable during the next month.

 

[Neo]

Acceptance of reality​

EDITORIAL (October 27 2008): It seems that Pakistan is limping towards Plan C after getting a disheartening response from the IFIs and friendly countries for its Plan A and Plan B for balance of payments support. Under Plan A, it may be recalled, the government was looking for 1.5 billion dollars from the World Bank, 1.6 billion dollars from the ADB, 500 million dollars from the IDB and 1.5 billion dollars from increase in workers' remittances.

This amount was in excess of the financing gap estimated to be around 4.5 billion dollars during 2008-09. Plan B stipulated financial support from Friends of Pakistan with a meeting scheduled for next month, while Plan C comprises an approach and negotiations with the IMF for an Emergency Financing Mechanism. Briefing the media on the options for a bailout package on 23rd October, Advisor to Prime Minister on Finance Shaukat Tarin insisted that, 'Friends of Pakistan' had good intentions, and were ready to help the country but the country was running out of time which was of great essence.

Also, Friends were worried about their own economies due to the global financial crisis. The real problem is that "the government cannot wait for more than 30 days to get cash assistance from multilateral lenders and friendly governments merely to avoid recourse to the International Monetary Fund." Pakistan had not yet "formally" asked for a facility from the IMF. However, a request will be made when the government believes that it cannot get enough money under Plans A or B. The Advisor revealed that the State Bank Governor and the Finance Secretary had already left for Dubai to discuss a "home grown" economic stabilisation programme with the Fund representatives.

This, according to him, was being done under Plan C to prepare the ground "in advance" for exercising all options. The IMF programme could be for 24 months and may require Pakistan to bring down its fiscal deficit substantially, curtail expenditure, maintain a flexible exchange rate and embark on a long-term policy to sustain growth.

Commenting on a report, attributed to the IMF Managing Director, that Pakistani authorities had requested discussions with the Fund on a financial assistance programme to meet balance of payments difficulties, Tarin said that senior Pakistani officials were meeting the IMF staff in Dubai for Article IV consultations to review the economy. The ongoing meetings, however, would pave the way for assistance in case Pakistan was unable to get the necessary funds from multilateral donors and Friends of Pakistan.

While Tarin sounded as if he was still weighing his options yet it is not difficult to read the writing on the wall and guess the way the scales are now tipped.

The government, for all practical purposes, seems to have lost the hope that friendly countries and certain multilateral institutions will open their coffers and come to our rescue to finance a huge gap in our external sector to avoid default on payments. Belatedly perhaps, it has realised that IFIs, like the World Bank, do not feel confident in lending to a country that does not have a proper understanding with the Fund and its seal of approval for the proposed policies.

While friendly countries have their own problems and are not inclined to be generous to countries likely to knock at their doors time and again without putting their house in order. Anyhow, the realisation on the part of the government that the people of the country need to be prepared for cohabitation with a fund programme with all its conditions is indeed a welcome sign of its pragmatism and needs to be appreciated in national interest. How long can we continue to be in a state of denial and look the other way when foreign exchange reserves left with the State Bank are likely to last for not more than two months and other sources of funding are far from certain?

The IMF programme, apart from providing adequate level of resources, would also ensure that the government is obliged to follow the principles of sound macroeconomic management, enabling the country to attain a sustainable position, particularly in its external sector, in the medium term.

Of course, a member country goes to the IMF when its economy is ailing and it is prepared to swallow the bitter medicine to become healthy. Obviously, such a bitter medicine has to be taken even if the country does not choose to go to the Fund. From hindsight, it would appear that Pakistan could have escaped the present traumatic conditions if it had managed the economy well during the last few years and utilised the available foreign exchange resources in an optimum fashion.

Of course, such a huge jump in international oil prices was unexpected but this could have been taken care of at the appropriate time by restrictive policies aimed at keeping the current account deficit within manageable level. The main thrust of the IMF conditions is not difficult to contemplate. In return for providing balance of payments assistance and cushioning the foreign exchange reserve position of the country, the Fund would ask for strict fiscal discipline, narrowing the current account deficit, tightening of monetary stance keeping in view the inflation rate, flexibility of exchange rate etc.

Seen closely, this is the only strategy which can plug the haemorrhage in the foreign sector, improve foreign reserve position of the country, reduce inflationary impulses in the economy and put back the country on a sustainable path of development. While the substance and the content of the measures, or their inevitability are understandable, there is however, a need for our economic managers to insist on some kind of safety net for the poor, during the programme period, so that they are not deprived of the basic necessities of life.

Be that as it may, we feel that it was a good strategy on the part of Tarin to let the country know in a subtle way that Plans A or B were (in fact they were non-starters) almost unworkable and the only option left with the authorities was to go to the IMF at this critical juncture. It is better to accept the reality that extraordinary steps are taken to get out of a very difficult situation. It is no use pretending that the country can somehow muddle through without taking unpopular decisions.