Pak Economy: Cause for Concern?
Ali Nawaz Memon, Maryland, VA

There are indications of Pakistan's economy suffering further reverses. The recent drop in the exchange rate is likely to accelerate. Some feel that we may be heading for an economic implosion. The Islamic Development Bank continues to help with the financing of oil imports, but there are no other significant rescuers in sight. A perusal of the daily newspapers makes disturbing reading. On one day alone (August 25, 2000), DAWN reported the following developments on different pages:

  1. The State Bank said on Thursday Pakistan had a gross liquid foreign exchange reserves of $1.111 billion, including $ 452 million foreign currency deposits of banks lying with SBP. In other words, net foreign exchange reserves stand at $ 659 million. As a matter of prudent policy and to protect the interest of the depositors the State Bank has decided since December 1999 that these deposits would not be utilized for meeting current account deficits.

  2. Since May 1999 Pakistan has received only $125 million from the Asian Development Bank and has been net exporter of capital to international financial institutions. In addition to debt servicing payments of $ 3.6 billion,which the country had to make during 1999-2000, oil price increase in the world market has resulted in an additional import bill of $ 1.3 billion.

  3. The emphasis is on selling of state assets.  The government will keep on adding more public sector companies in the two phased, short and long term, 49 entities list project for privatization. The Chief Executive, General Pervez Musharraf has in principle approved the privatization of Pakistan International Airlines Company (PIAC). The meeting also reviewed the bidding results of LPG Business of SSGC, PSO and SNGPL and recommended having resolutions from the respective boards of the companies before obtaining final approval.

  4. The Privatization Commission received a total offer of Rs 630 million when the LPG business of three state-owned companies came under hammer on Thursday.  It is not clear if this is a fair price or distress sale price.

  5. Pakistan has told the International Monetary Fund that the State Bank would have to continue buying foreign exchange from the open market in the current fiscal year. SBP had purchased around $1.6 billion  during the last fiscal year.

  6. An increase of 23.2% has been recorded in non-performing loans (NPLs) during 1999-2000,

  7. Cuts are being made in the budget announced only two months ago. For example, the Sindh government has slashed the budget allocations for the Lyari General Hospital for the fiscal 2000-2001 by over 40%.

I hope that we can find some solutions. I wish that the government would take the citizens in confidence, restore the democratic process, and work with all well-wishers of Pakistan to put the economy back on a sound footing.

The solution lies in generating more revenue, controlling the defense budget, and getting further debt rescheduling. Failure to act on all three fronts can have disastrous effects in the very near future.