Pakistan faces tough times

Sajid Khan, a computer system engineer in Islamabad, says he foresaw the coming storm. He is personally not much affected by Pakistan’s slide towards the economic abyss, but is nevertheless angry. ‘‘When your country’s industries are closing down and the government is doing precious little to build investor confidence, you know it’s (turmoil) coming,’’ he says.Pakistan’s busiest shopping areas are the best indication of the spreading gloom. They are flooded with imported goods but deserted because foreign cars, mobile phone handsets and electronic goods are suddenly out of reach. Financial analyst Iffat Ara blames the ‘‘massive trade deficit for the current account deficit, which stands at nearly $20.8bn in 2007-08. That’s a 53% increase on 2006-2007.’’ The Karachi stock exchange is also badly hit. Stockbroker Zahid Latif Khan says that after an all-time high of 15750 points on April 17, it plummeted to an abysmal 9144 points. ‘‘I have no income whatsoever but office expenses, salaries and other overheads remain,’’ he laments. Khan has personally lost at least Rs 30 million in the last few months. He fears the worst if the government ‘‘does not buy floating stocks and provide much-needed liquidity’’. He says Pakistan’s government also needs to offer foreign companies sovereign guarantees of a share buyback at a 10% premium.Smaller players in the stock market trade have either shut shop or laid off workers, adding to Pakistan’s rising sense of panic. Meanwhile, property prices are dropping. A combination of circumstances have blown the crisis into the ongoing storm. Inflation is at 25%, foreign exchange reserves are at $ 4.5 billion (according to the PM’s finance advisor Shaukat Tareen), domestic production is down and the cost of doing business is up. China or the newly-formed ‘Friends of Pakistan’ bloc has not offered any money up front and the country would be lost had it not made up its mind to swallow the bitter pill of seeking loans from the World Bank and International Monetary Fund. Well -known economist and former finance minister Shahid Javed Burki says there may be little hope for a country held fast by the dependency syndrome. Burki recalls visiting Beijing as finance minister in December 1996, when foreign exchange reserves had fallen to $342m and Pakistan would have defaulted on World Bank and IMF repayments without a hand-out. But Burki was well-known to Beijing for helping China during his stint at the World Bank. The result: he came away with a promise from Beijing of $500 million.But the situation is very different today, says Burki. ‘‘I am not confident China will provide a great deal of help. The only way out is to go to a dozen potential donors with a well-developed programme for reform.’’ The crisis that has America in its grip further deepens the economic pall over Pakistan. Burki believes that if the US goes ever deeper into recession, remittances from expatriate Pakistanis may be halved to just $1 billion. The dollar has already touched an all-time high against the Pakistan rupee, which depreciated by 20%.But there are some good news stories too, such as physician Dr Iftikhar Ahmad. He invests in stocks and property but claims to have weathered the crisis because ‘‘when others were investing in property, I was selling.’’ He says the government should learn from the experience of its larger neighbour India, which restricted all, but vital, imports. ‘‘We should learn from Rajiv Gandhi and his mother Indira who put a stamp on all imports. They should be prohibitively taxed,’’ says Ahmad.Perhaps because he is has been luckier than most people in Pakistan, Ahmad insists it is wrong to blame poor economic management for the current crisis. ‘‘There is a war going on, people are dying, businesses are closing down, news of death and destruction are over-played by a hyper-active news TV channels. All this is enough to shatter the confidence of investors, locals and foreigners,’’ he says evenly.It is doubtful, however, if others will see it that way. Pakistan is pinning its hopes on the ‘Friends of Pakistan’ meeting in Abu Dubai in November. But the new grouping of UK, France, Germany, US, China, UAE, Canada, Turkey, Australia and Italy, plus the UN and EU may not deliver. Analysts believe any future loans for Pakistan will come with the toughest of conditions and drastic fiscal management recommendations.Pakistan may be as down and out as it is possible for a country to be.