Pakistan finds itself at the end of its tether. With resources dwindling, options limited, and problems on the rise, Pakistan's friends find it hard to predict her future - and a failed state label would be only too easy to affix, but hard to justify. This paradox has some logic behind it.
Once it is conceded that things have really hit a nadir, the rest follows automatically, but not what everybody thinks. Henceforth, there is no way to go but up. You have to rise when you hit the bottom, as you cannot go down any further. Government borrowings from the banking system in the country (SBP and other banks and DFIs) have increased to an unprecedented level - far beyond the limit prescribed in the budget for fiscal 2007-08 (Table 1).
Thus, it will be noted that there has been an increase of 210,353 million rupees in gross borrowings of the government from SBP and other Scheduled Banks during the period of five months upto end November 2007.
There was also a net decrease of govt. deposit with banks (SBP and others) during the same period, meaning a total draw-dawn of Rs 220.712 billion during the five months. After the events of December 27, 2007 and thereafter, the situation now, (latest available figure) is in Table 2.
The gross govt. debt due to SBP and other banks could possibly climb to 3 trillion by then unless the government cut-down their expenditure and improve tax collection dramatically during the remaining period.
REVENUE SHORTFALL (BELOW PAR COLLECTION OF TAXES)There have been reports of revenue losses and less than anticipated collection of taxes. With the economy hit by social unrest, power shortages and diminishing industrial (and agricultural) outputs, prospects for a spurt in tax revenues collection during the next few months to end of current fiscal look dim. However, a vigorous campaign, for expansion of tax net and plugging the loopholes, could provide a ray of hope.
DIVERSION OR FREEZE OF DEVELOPMENT FUNDS: Recently a policy decision has been announced, blocking previously approved funds for projects that have not yet been started, in order to curb the expanding budget deficit, and to keep it within the prescribed percentage of GDP. Apart from the question of propriety of the measure, the indirect losses accruing from deferring the affected projects' initiation will have an adverse affect on the current and future economies, which cannot be measured.
CLAIMS FOR DAMAGES: Losses to businesses, industry, public and private properties, banks, cars and others, during the mayhem following BB's tragic murder, are difficult to assess. Generally speaking, only a small percentage of these losses were covered by insurance, and as such, the burden ultimately falls on the exchequer or the victims themselves. The indirect losses will last for decades, provided no further calamity befalls the stricken.
WRITING OFF NON-PERFORMING LOANS: The amount of NPLs, even before the fallout of sub-prime debacle in USA and elsewhere, was colossal. Now, with hindsight it could only be gigantic, especially with the present realisable value of securities or mortgages as collateral for the loans. To these must be added the amounts receivable from banks clients against credit cards and personal loans for cars or other purposes.
Exact amounts cannot be determined, but the spate of scandals and near bankruptcies in the US and Europe, so much in the news these days, make one shudder at the implications in Pakistan.
DOWNGRADING OF CREDIT RATING AND CONSEQUENTIAL PROBLEMS: Recent events and reports regarding law and order situation, war against terror, scams and scandals in the officialdom, and a host of other undesirable factors had led to a downgrading of the banks and other institutions' credit rating. This directly affects the prospects for foreign aid (grants and loans) as well as foreign trade transactions (L/Cs, D/As etc). Their exact amounts cannot be determined, but it will take ages to rebuild the tarnished reputation.
WITHDRAWAL OF FUNDS INVESTED: A trend has lately become visible of foreign investors withdrawing some of the amounts invested in ventures in Pakistan. A trickle at present, it could conceivably grow in size if corrective measures are not put in place immediately. Present or future commitments for FDI are at risk of non-fulfilment, which does not augur well for plans for development and other projects.
FALL IN INCOME FROM TOURISM: Conditions in the country discourage all but the truly hardy tourists and visitors, and it will take a long and sustained effort to lure them back in any sizeable number.
ENERGY AND OTHER CONSTRAINTS: With oil prices escalating to unprecedented levels, gas and electricity breakdowns and other related problems have had a destructive impact on trade, industry, agriculture and exports, to say nothing of other minor and major inconveniences, individual or collective. Tardy bureaucratic fumbling and proverbial red tape, combined with some negative tactics of vested interests, inhibit any plan for improvement. Financial impediments seem to be insurmountable, while some diplomatic impasses also hinder progress of future planning.
PURCHASING POWER PARITIES: Domestic inflation and resulting loss of rupee's purchasing power, reflects in the forex markets too. Our main currency of intervention is US dollar, which itself is regularly shedding its value against all major currencies of the world, that looks like an undeclared, but managed 'de facto' devaluation (as against a declared 'formal' re-alignment of currencies). The irony is that Pakistan rupee value is deteriorating faster than the dollar's even.
The implications, for our forex reserves and balance of payments are not difficult to imagine. We have also had an adverse balance of trade, the balance on current account being camouflaged only by remittances from abroad (by Pakistanis working abroad, remitting to their families here).
This last source has not dried up (may in fact show an upsurge for a little while) but the loss of export possibilities, and undiminished imports (may be even an enlarged volume of imports to cover damages and shortages) will only aggravate the situation.
Generally, in industrial countries, currency devaluation leads to increased exports, which become more competitive to buyers. However conditions in Pakistan negate such prospects, because our exportable surplus position has too many impediments to become elastic, to meet any increased demand, (which by itself, is an 'iffy' proposition).
Added to other factors, in the context of industrial (or agricultural) production, is the rising cost of inputs and the essentially small production units, which do not benefit by the 'economy of size'
POVERTY LEVEL: Despite official statistics claiming a reduction in poverty level, the domestic price increases in food and other vital necessities of life, have worsened the situation for even the middle class, let alone the working class or those under the poverty line.
Unless some drastic action is expeditiously taken to rectify the situation, the resulting social unrest and chaos could only lead to unmitigated disaster, and doom the future generation of Pakistanis.
AGRICULTURE: With about 75% of the rural population depending exclusively on agriculture and farming activities, and another 25% of city-dwellers engaged in processing and/or trading in agricultural produce, the weather plays an important part in their lives.
So vagaries of nature - excessive rainfall and storms, drought and dry weather, prolonged summer or winter conditions in isolated parts of the country, lack of water, or, conversely, flooding, earthquakes or other natural disasters, all have a direct bearing on the production of crops and well-being of the farmers. People other than farmers may also be affected, though not to the same degree.
The above are some of the major points to ponder, while devising a 'modus operandi' or, 'raison d'etre,' for survival despite, the gloom and doom forecasts of all and sundry. It is a formidable task no doubt, but not beyond the ingenuity of humans, once they put their mind to it, with determination to succeed. Some pragmatic suggestions will follow in the succeeding narration.
===================================================================
Million Rupees
End November 07 End June 07
===================================================================
A) SBP Credit to Govt. Sector
-------------------------------------------------------------------
Investment in Govt. Securities 552,491 461,725
Loans to Govt. 12,751 10,820
Others 7,971 7,971
(Less) Govt. Deposit 92,919 155,156
-------------------------------------------------------------------
B) Scheduled Banks Credit to Govt. Sector
-------------------------------------------------------------------
Investment in Govt. Securities 906,073 839,060
Loans to Govt. 82,470 100,284
(Less) Govt. Deposits 418,263 366,385
===================================================================
Source: SBP
[To be continued]
Comments
Comments are closed.