ISLAMABAD, 12 November — As the financial wheels of the donor countries move frustratingly slowly, cash-strapped and war-hit government of Pakistan is forced to reorder its economic priorities.
While the generally depressive sentiment takes a severer hold, development spending is the key victim. President Gen. Pervez Musharraf, continue to be flooded by top-flight visitors ranging from British Prime Minister Tony Blair to German Chancellor Gerhard Schroeder, with US Secretary of State Colin Powell and Defense Secretary Donald Rumsfeld thrown in, the Pakistani leader rightly laments: "I have yet to see the fist dollar come in." Spending cuts will dampen already slow growth, further, the government should realize. In order to cope with the immediate situation, Musharraf has ordered the Ministry of Finance (MoF) and the Planning Commission (PC) "to change the whole economic and development strategy in order to minimize the serious effects on the economy" in the post-Sept. 11 situation.
The MoF and PC should "urgently finalize a new, appropriate and effective strategy to meet the depressing situation as only financial pledges and commitments have been made by different countries but nothing has actually come into the treasury," he said. "I have received firm assurances from US and its allies in the present anti-terrorism campaign, for providing grants, softterm loans and a larger market access for Pakistani exports, but unless that support materializes, there is no option but to make major readjustments," the president says.
How far the present crisis impacts the Pakistani economy? In order to create fiscal space, the government may resort to enlarging the budget deficit to 5.3 percent of the GDP, the same as in financial year 2001, scaling down the targeted 4.9 percent. It was 6.5 percent in fiscal 2000.
Finance Minister Shaukat Aziz estimates "there is going to be a $2 billion to $3 billion loss to the economy this year, due to a fall in government revenues, decline in exports, shrinkage of foreign investment and a slowdown in the country’s privatization process," as there are not enough good buyers for its state-owned enterprises that are on sale. Textile earnings alone, that form 60 percent of the country’s overall exports, are likely to decline between $700 million to $1 billion.
Hopes are that Washington may announce some aid package for Pakistan during Musharraf’s visit to US. But, American sources also have informed Islamabad that the US Congress, and international financial institutions like IMF and World Bank may take "several months" to approve an economic package. Besides these lengthy procedures that have to be gone through, there could be pure foot-dragging, or real resource constraints. The IMF, for instance, is already saying so. It does not have enough money to provide Pakistan with a $2.0 to $2.5 billion Poverty Reduction and Growth Facility (PRGF), according to Thomas C. Dawson, IMF’s director for external relations.
The European Union has, however, taken a positive step. It has reduced 10 percent tariff on Pakistani exports. It can translate into $400 million additional exports to EU this year.
In view of this merky situation, and as a first step, Islamabad has stopped work on a number of mega projects. This first phase will cut government’s developing spending totaling Rs.12 billion including Islamabad-Peshawar Motorway, National Drainage Program, and Flood Control Project. More cuts are likely to follow in the budgeted Rs.120 billion Public Sector Development Program (PSDP) for the current fiscal 2002, in case the situation does not improve. The amount will cover loss of revenue that follows a 30 percent reduction in exports, and shrinking imports yielding reduced collection of the customs duty — a major source of government revenues.
The initial impact of the US bombing on Afghanistan, did not really hit the first quarter. It is becoming visible now. The special cell of the government’s Export Promotion Bureau reports first cancellation of export orders, mainly textiles, by 29 companies. These include 20 US, seven European and a South African buyer. The total amount is not big — $14 million — but it shows the unfounded unease the Western importers are showing. Many more pre-Sept. 11 orders are on hold.
