Many “political” and “security” analysts in
India
and elsewhere had been predicting an economic collapse of
Pakistan
for the last two years. Though the economy of Pakistan for the last couple of years had been in a bad shape, ever since the military take over there seem to be an arrest in the downslide, if not an improvement in the economy.
The economy was in total chaos when the military took over in October 1999. The country was heavily dependent on the foreign loans to meet its Balance of Payment obligations, with 56 percent of the budget going towards debt servicing (as of 30 June 1999, total external debt of Pakistan was $38.8 billion); Foreign exchange reserves were a mere $1.45 billion; the IPP imbroglio had put a dent on the foreign investment and Pakistan was yet to receive the $280 billion tranche from the IMF; and the tax collections in the previous year declined from 12.4 percent to 10.3 percent of the GDP.
There are at least three main challenges that the military government faced and is facing to improve its economy: Reviving the confidence of the investors, especially that of the foreign investors, negotiating with the IMF and other major agencies and finally economic reforms inside
Pakistan
.
More than 80 percent of investment in
Pakistan
comes from abroad. Unfortunately in
Pakistan
, for the last ten years, neither there was political stability nor unifrmity in its economic policies, two key factors that attract foreign investment. Neither Benazir Bhutto nor Nawaz Sharif was able to govern the country for five years. Either their government was dismissed or forced to resign. More than the political instability, the lack of continuity in their economic policies for political reasons forced the foreign investors to hesitate
Besides the lack of continuity, Nawaz Sharif’s attitude towards the foreign investors, especially in the case of the Independent Power Producers (IPPs), created a huge doubt over the latter’s mind. Understanding the nature of the problem, the military government started re-negotiating with the IPPs and during December 2000, the dispute with one of the main group – the Hubco, was resolved. It is expected that the resolution of Hubco dispute will ultimately result in increasing foreign investment. It is very essential at this juncture, as the foreign investment during July-October 2000 reduced a ten-year historic low of $31 million according to the State bank of
Pakistan
.
The second major challenge is to recover the defaulted loans and ensure accountability. Both depend on the following factors: an efficient, unbiased investigating agency, which is corruption free; its ability to bring and sustain the efforts against those defaulters and the looters in the courts; a swift judicial action etc. According to an estimate, around 225 billion rupees remain unaccounted in various financial institutions of the state, with more than 480,000 defaulters. The military government set up a National Accountability Bureau (NAB) to ensure across the board accountability, recover the defaulted loans and to tackle corruption.
The third challenge for the military government has been its dialogue with the IMF. By the end of November 2000, the IMFs Board of Governors approved $596 million to
Pakistan
. However only $200 million was released and the rest will be released in three instalments in March, May and September 2001, subject to further satisfaction of the IMF. The reason for these instalments and further approvals, according to Shaukat Aziz “has been the problem of credibility.” More than that, it is expected that the IMF relase would enable the ADB and the World Bank to sanction further loans. The ADB had already announced that it would it provide $52 million to help women farmers and in December 2000, it also approved a record level of assistance worth $707 million for seven projects in
Pakistan
. If the government is able to fulfil the expectations of the IMF’s standby agreement, it would be in a position to receive further assistance under Poverty Reduction and Growth Facility (PRGF) programme.
The military government believes that much had been achieved on the economic front. According to government spokesman, “Rs 25.5 billion had been recovered from loan defaulters and Rs390 million deposited in the national exchequer on account of recovery from the corrupt people, foreign investment was pouring in, exports had registered an 11.3 per cent increase in the first five months of the current fiscal year, and the growth in tax revenues had been 11.3 per cent in the first five months of the fiscal year.”
Not many inside
Pakistan
would support the achievements of Army on the economic front. Nevertheless those who criticise the Army’s achievements also understand its limitations. Many, especially outside
Pakistan
, expected a total collapse of Pakistani economy by this time. This has not happened until now. With the release of IMF fund under the standby agreement and with negotiations with the IMF in process, it is expected that the other major banks will start assisting
Pakistan
in the coming days. Additionally, the dispute with the Hubco and the IPPs finally over, the military government is expecting an increased foreign investment in
Pakistan
.
Whether this will enable
Pakistan
to become a robust economy or not, it will reduce the economic tensions that the government has been facing. And surely there will be no economic “collapse”.
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