ARTICLE (November 25 2008): The fiscal 2007-08 [FY-08] witnessed historical current account deficit of $14 billion. This was mainly because of unprecedented trade deficit as the imports were almost double of our exports. The trade deficit was partly offset by the workers' remittances exceeding $6 billion and partly from capital/foreign investment inflows. The overall balance of payments deficit was $5.8 billion.
The situation has not taken any positive turn during the first four months of the current fiscal 2008-09 [FY-09]. The government did not act promptly for tackling the critical situation in the external sector. The movement has started recently with the official visits of the President to China and Saudi Arabia. As usual, these visits have been termed very successful but the formal commitments given by these friends have not been made public. More emphasis, however, seems on approaching the International Monetary Fund [IMF] for cash funding.
Pakistan's external debt currently is over $44 billion and if we borrow additional $10 billion during the current fiscal, it will rise to $54 billion. This will be only one year arrangement. What about the coming years? Is there any medium/long term planning? We have to construct mega dams in the next one decade for which too, we shall have to borrow?
How deep shall we bury the nation under the debt? Do we not have an option other than borrowing and that too from the stringent lender IMF?We do have at least for the current fiscal. The prices of petroleum have halved during the recent weeks. During FY-08, we spent $4.318 billion and $6.177 billion on the import of crude/finished petroleum imports respectively. The reduction in the prices will cut import bill by $5 billion approximately.
There has been lot of talk about deferred payment [gratis] supply of crude oil by Saudi Arabia. It may be mentioned here that we import crude petroleum oil from three sources: Saudi Arabia, Iran and Abu Dhabi. Even if Saudi Arabia agrees to provide crude on deferred payment [or gratis] basis covering our requirements [of at least two years], it will not be prudent to fall back upon a single source leaving the other two.
It is not known how much crude comes from Saudi Arabia; let us take it @ 50 per cent. If an agreement is finally reached with Saudi Arabia, it will cut the import bill by other $2 billion.
The import of palm oil during FY-08 stood at $1.4 billion. The prices of this commodity have also reduced substantially in the international market. The import bill is expected to be cut by approximately $0.7 billion on this account. The government/State Bank of Pakistan [SBP] had recently raised import duties/placed 100 percent margin requirements on opening of letters of credit for import of some specified items with a view to curtailing imports.
SBP, however, did not place any such restriction on import of these items on "contract" basis. Thus the importers having influence or resources abroad are making imports without letters of credit while the cost of imports against letters of credit is inflating because of additional borrowings for placement with the banks as "margin. The proper course shall, therefore, be to temporarily place complete ban on the import of non-essential items after properly identifying them.
The telecom equipment alone, including mobile phones, ate away $1.3 billion during FY-08. Besides heavy amounts were spent on cars/cosmetics etc. It will not make much difference if import of such items is banned for a year or so. A foreign exchange savings of about $9-10 billion can be secured in the above manner during the current fiscal.
The import bill may even further be cut with the improvement in the electric generation and supply. It is believed that many power units were kept inoperative because the generating companies did not have funds to purchase the high priced fuel. With the lessening of fuel cost, these idle units will come into operation curtailing the bill on the import of power-generating machinery as well as fuel cost which these units consume. In FY-08, over $1 billion was spent on the import of power generating machinery. The workers' remittances are on the increase. They will bring additional over $1 billion during the current fiscal.
Thus instead of acquiring harshly conditioned IMF loan, the preferable course for the government would be to seek debt rescheduling for further three years or so. This could save another $3 billion, provide some solace for the next 3 years and will also not add to our external debt.
These measures can pull us out of FY-09 without knocking at IMF's doors and becoming [perhaps] its sole customer at the current moment. The approach to the IMF will prove to be disastrous as one of the pink pills of its treatment is believed to be 2 per cent raise in the interest rate at a moment when our manufacturing sector - which remained neglected during the Musharraf era - is groaning under the present SBP Governor's failed monetary tightening policies [in the garb of controlling inflation] which are adding a lot to the miseries of the sector in the form of increase in the "cost of doing business" rendering them uncompetitive in the international market. But seeking help from the IMF seems to be sole option/compulsion of the rulers.
These alternatives are not the perpetual remedies. The long term planning may have to commence forthwith taking into account the following aspects as well: There is a strong need to develop mass transit system for big cities of the country with a view to saving the expenditure on fuel/vehicle imports. The Sindh Governor had been endeavouring for the revival of Karachi Circular Railway but has not been successful [perhaps] because of stiff resistance from strong transport mafia.
As an initial stage of developing the mass transit in the city, the project needs to be promptly taken in hand. Like the northern areas, the government also needs to establish its writ over the strong mafia pockets existing in the big cities.
The huge coal reserves in Thar (Sindh) are obviously not meant to be formed part of the history for the coming generations. They are for utilisation in the country and also for exports. It seems that the provincial government of Sindh and the federal government are still busy in establishing their respective "writs" over these reserves even in the difficult time the country is passing through.
This entangle must end forthwith and the coal deposits should be exploited and used not only for generating electricity, conversion into gas for use by the transport but also for exports so as to ease pressure on foreign exchange resources. The purpose will not be served unless matter is tackled on "war footing".
The National Logistic Cell [NLC] was set up in the Zia-ul-Haq era primarily to transport huge quantities of imported wheat to up-country. Later on, it assumed permanent feature at the cost of Pakistan Railways and the goods transport eventually moved to the NLC from the Railways, This was a costly proposition in terms of heavy foreign exchange expenditure on import of fuel and vehicles/spare parts.
But our prodigal rulers were not to worry. The current vulnerable foreign exchange situation warrants that Railways' goods transport system should be fully revived promptly with efficient handling of the private sector cargo. This will result in a lot of foreign exchange savings through reduction in fuel/ vehicles and spares import bill.
An English daily on October 17, 2008 carried Kuldip Nayar's article saying that the corrupt Indian bureaucrats/politicians and businessmen etc have accumulated a holding of $1,456 billion outside the country. About a decade back, there has been a lot of talk about the overseas holdings of the Pakistani feudals/corrupt bureaucrats and industrialists etc and the amount was put at $100 billion. During the last one decade of rampant corruption in all walks of life that estimate may have at least doubled now.
Can an appeal to these 'wealth grabbers' to transfer a part of their overseas wealth - say - up to $25-30 billion to Pakistan to let the country tide over the present difficult situation prove effective? These conscienceless "wealth grabbers" are unlikely to heed the nation's call. However, FIA's current efforts against such people, if they are not politicised with the passage of time as generally happens in our country, may yield some results.
