Economy facing more than Rs 380bn loss each year
* Lower industrial production, inflation, current account deficit destroying economy
By Razi Syed
KARACHI: The lower industrial production, soaring inflation, current account deficit, foreign debt retirement and non-implementation of funds in proper places by the state-owned enterprises (SOEs) are destroying the already trembling economy of Pakistan.
It is estimated that the economy was facing more than Rs 380 billion loss each year since the past four years, the sources in the Ministry of Finance informed on Friday.
The economy of Pakistan is still under threat and there are no evident measures being taken by the government to stabilise the economy.
The International Monetary Fund (IMF) also expressed concern over the health of the falling economy of Pakistan and said Pakistan would face hard economic times in the years to come.
The SOEs are a highly politicised matter. Pakistan International Airlines, Pakistan Steel Mills, Pakistan Railways, Trading Corporation of Pakistan and Pakistan Post are the big white elephants eating billions of rupees bailout every year, the sources added. Thus, privatisation in a transparent and open manner is the only way to unleash the pent-up productive potential of the nation’s resources.
The foreign direct investment had dropped to a drastic level on unstable economic conditions besides some poor policies of government in macro financial sector.
The government was busy in printing more currency in order to meet its expenses in the absence of revenue generation resources from taxes, privatisation and foreign aid, said business circles.
The printing of currency was causing pressure on macroeconomic stability and accelerated core inflation to more than 12 percent.
The government should stop subsidies to energy sector in order to save billions of rupees for development projects.
The government is trying to print currency notes equivalent or more than 2.5 percent of the gross domestic product (GDP), as it has no concrete programmes ahead, said a foreign currency expert in Texas USA, Fazal Ahmad.
The high government borrowing from State Bank and commercial banks to meet transactions on account of import bill payments and subsidiary on commodities is the root cause of inflationary conditions, he added.
The country’s external debt dynamics were challenging, with more than $4.8 billion of debt repayment due in FY13.
The large International Monetary Fund debt payments and the country’s dwindling level of official foreign reserves had also increased the probability of a default.
The key macro indicators were still weak, as persistent inflation and pressure on the fiscal and current accounts, remained the key challenges for the economy.
Low investment and energy shortages had put pressure on direct economic growth and high fiscal deficit remained a major risk to the macro economy.
The country will not achieve GDP of more than 3-3.5 percent in the fiscal year 2012-13, he added.
The current account deficit is around 1.45 percent of GDP while the country faced a deficit of $4.680 billion during FY12, against the surplus of $214 million in the preceding year.
This trend would continue in 2013 on account of huge foreign debt repayments and an expected rise in international oil prices, besides heavy borrowing of government from commercial banks.
The trade balance also increased around $316 million in July 2012 as compared to $89 million in July 2011.
During July 2012, total exports stood at $2.8 billion as against $2.13 billion in the previous year, while imports amounted to $3.34 billion against $3.16 billion in 2011. The services deficit rose to $1.32 billion as compared to $1 billion in July 2011.
Pakistan has so far repaid $2.52 billion of the IMF’s Stand-by Arrangement (SBA) facility out of the total debt of slightly more than $7.1 billion loan, Pakistan acquired in 2008 after fragile economic conditions and for supporting the economy. The outcome is the pressure on Pakistan’s interbank rate, which is continuously under pressure as it touched highest-ever level of Rs 96.60 against the dollar.
Pakistan would likely to go to the IMF in February 2013 to seek fresh loan for the retirement of IMF’s SBA facility. Seeking loan for repaying fresh loan is the greater risk for the fragile economy as country has hardly three months oil payment, import bills and other miscellaneous bills forex reserves.