JEDDAH, 27 July — Pakistan detonated nuclear devices in May 1998 prompting international sanctions that led to its economic meltdown. The country already reeling under huge debt plunged into new crises — rupee plummeted, foreign exchange reserves dwindled and flight of capital began.
But the worst action that followed the nuclear tests was the freezing of foreign currency accounts. The government moved swiftly and imprudently to freeze $11 billion held in banks to pre-empt, what it said, a run on the banks and save the country from bankruptcy — a justification that proved totally off-base.
The ill-planned move not only shattered the confidence of the people, especially the expatriates, but also dried the flow of remittances that was vital to give the flagging economy a shot in the arm. Economic reforms and privatization process were blown off course due to the paucity of funds and the government resorted to domestic borrowing to meet its requirements.
The previous government of Nawaz Sharif being an elected one had very little room to maneuver. There were a number of irritants that prevented the government from levying taxes and carrying out reforms. Political expediencies were the major hurdles.
Now things have changed, the military government is capable of taking drastic measures to put the house in order. It has succeeded in obtaining loans from the donors — the IMF and others — but that is not a matter to cheer up. The more we get loans, the deeper we plunge into the quagmire.
The only viable option for the government to tide over its economic problems is to win back the confidence of overseas Pakistanis and attract investment.
Expatriates, according to a recent estimate, remit around $6 billion annually. But only $1 billion is remitted through the banking channel, the remaining $5 billion is remitted through hundi — an illegal channel that is said to be prompt and more profitable.
Overseas Pakistanis, irrespective of where they live, love their country and want to contribute to its development. Needless to say, they have always responded overwhelmingly whenever they have been asked to help the government tide over problems. There are some black sheep, no doubt, but that is the case with all communities. In contrast, the help they (overseas Pakistanis) get from the government is negligible.
The freezing of the foreign currency accounts is now being acknowledged as a big mistake. But the present government cannot undo the damage. What it can do now is chalk out a policy that can restore the confidence of overseas Pakistanis and attract investment. Many overseas Pakistanis have set up businesses and industries abroad. They can switch their investments to Pakistan if they find the atmosphere conducive to a profitable venture.
To restore the confidence, the first thing the government should do is to provide incentives to the expatriates who want to remit money through legal channels. The government has announced some incentives in the budget but those fall short of expatriates’ expectations. The incentives do not match the attractions provided by hundi operators who give good rates and transfer the money promptly. Dollar is traded in kerb market at around 67.20 rupees while officially the dollar is pegged at 64 rupees. The difference is big enough to lure people away from legal channels.
Banking channels should be made more smooth and attractive. One change that could make a difference is that overseas Pakistanis remitting foreign exchange should get money in Pakistan at kerb rates. This will prompt a large number of people to use banks as conduits to transfer money and this would result in a considerable increase in foreign exchange reserves.
If the flow of foreign exchange continues for a long time, the debt problem that has weighed heavily on our economy, will be eventually solved.
Our governments have always dragged their feet in making decisions. When they arrive at one, it always proves late. We are used to procrastination. We keep deferring things on one pretext or the other until we realize that it is too late to act or the decision taken is redundant. The military government certainly, has, less constraints in taking decisions. It should act swiftly to win the confidence of the expatriates and make them send foreign exchange to their country.
The main problems Pakistan is now confronted with are poor economy and paucity of resources. All others are concomitant problems. If our economy is strong, we can focus on development, defense and other priorities. If we remain indebted to international donor agencies, we will have to yield to their conditions which are sometimes very harsh and affect ordinary people.
Those at the helm of affairs in Islamabad should take steps now. Poor economy breeds a host of other problems. If we can strengthen our economy, we will no longer remain dependent on international donors. We will then be able to determine our priorities and take decisions on our own.
It is time we acted because the more we procrastinate the more we will plunge into the abyss of debt and attendant problems.
