ARTICLE (May 11 2009): Sudden and sharp increase in the international commodity prices, including oil, left us with a trade gap of US $21.5 bn and a current account deficit of US $14 bn in FY 2007/08. Consequently, forex reserves fell to a dangerously low level of approximately US $5bn by mid 2008.
At the same time, inflation became rampant and we have seen SPI and CPI in excess of 20 percent all during 2008 and first quarter of 2009. The former central bank governor, Dr Shamshad, starting from May 2008, rightly and timely followed a very strict monetary policy to contain the inflation. Interest rates peaked in November 08 to 16 percent when the discount rate was raised to 15 percent. Banking sector liquidity became extremely tight due to the monetary policy impact and an inexplicable Rs 250 billion decline in banking sector deposit in later part of 2008.
GDP growth slowed down to the current level of little over 2 percent and pressure on forex reserves caused steep decline in rupee value against major currencies of the world. As it happened in bourses across the world, stock market quickly lost huge values slumping from KSE index peak of 15000 points in April 2008 to less than 5000 by the end of 2008. Pakistan was left with no option but to sign up with IMF in October 2008.
Six months on, suicide bombings galore, attack on Sri Lankan cricket team, Swat Deal, Taliban's general aggression, long march along with Punjab government's dismissal and subsequent restoration, countless ineffective drone attacks and many other events that would create havoc in any country, Pakistan's economy is much more stable than it was in the beginning of the last quarter of 2008.
Consider the following:
-- Global recession has worked wonders for Pakistan. Commodity prices, including oil, have collapsed with the same speed with which these had risen in 2007. Our exports have held at the same level. Therefore, we will see a much lower trade and current account deficit in 2009. In fact, in February 2009 we saw a current account surplus! Forex reserves have doubled to the present level of approximately US $10 billion.
-- Thanks partly to a proactive monetary policy stance, inflation numbers are down and the central bank last month cut the discount rate by 100 basis points and lending rates compared to the beginning of 2009 are down by 250 basis points. Banking sector is flushed with liquidity and large/mid sized banks remain extremely profitable. Karachi Stock Exchange index has shown a very positive trend and remains one of the better performing stock markets in the world during 2009.
-- IMF agreement remains on track and Pakistan has met almost all targets set in the agreement. In fact, handling of the economy by MoF/State Bank has received kudos from World Bank and IMF. As the world tries to grapple with the recession, Pakistan's economy will also remain under pressure in the next 12 to 18 months and will require continued support from multilateral agencies and our 'Friends'.
Seeking IMF support, particularly during the current world scenario, should not be a matter of shame for a country fighting an insurgency in which the entire world is involved. Imagine where Brazil, Turkey and Argentina would be without periodic IMF programs! Pakistan at least has a degree of predictability in its economic direction, a luxury many countries would love to have.
Political structure/fight against terror: Pakistan has had 9 elections since 1970. Despite four military interventions totalling a period of 32 years, the political structure, no matter how chaotic, remains intact and politicians' commitment to 1973 constitution is as strong as it was at the time of its unanimous approval.
Whenever a military government unwinds in Pakistan it produces its own chaos and the debris flies in all directions. Ayub regime's unwinding cost us half the country. Zia left a legacy of jihad and Islamisation, which has caused havoc in our society. The flamboyant Musharraf, the resurrection of Taliban after their defeat in 2001 and the failed war on terror, have also left the politicians to take care of Balochistan.
February 2008 elections once again proved the point that given a chance, Pakistanis would always opt for mainstream political parties which do not have religious inclinations. Even in NWFP's Pushto speaking belt, secular parties, ANP, PPP and PPP Sherpao, carried the day. PPP and Muslim League Nawaz, despite a history of bitter rivalry, are behaving in a reasonably civil manner.
Even the restoration of judiciary was achieved in a manner that while it created temporary tensions was achieved without any bloodshed or prolonged civil disturbance. PPP stupidly led a charge to dismantle Shahbaz's government but saner elements within the party forced their own President to back off and today it is confirmed that PPP will join Muslim League in the Punjab government.
This kind of give and take was unthinkable during their bitter rivalry of the nineties. The charter of democracy signed by late Benazir and Nawaz is not only a wonderful document, it provides a road map for strengthening of political institutions and soon will be adopted in one form or the other. Also, 17th amendment will eventually be repealed, further consolidating gains made during the lawyers' movement and February 2008 elections.
Despite all their weaknesses, main political players seem to have matured over the years and have, at least, learned some lessons from history. I do not see any political upheaval in the near term and though governance need to be substantially improved, let's give a chance to the politicians to tackle the huge challenges that confront our country.
Whether it was planned or not, the way events have unfolded since the initial days of Swat deal, for the first time in years the government seems to have a legitimacy for the recent military action in Swat and adjoining areas. There is an amazing sentiment against the Taliban even in NWFP, and the military action has political support, something that Musharraf could never get and, therefore, failed in his attempt to control the spread of Talibanisation. US should understand that this fight will only be won once people in Pakistan, particularly Pathans, are fully behind this effort.
Believe it or not, ANP has played its cards brilliantly and we should see positive results. All mainstream parties are backing ANP and the military as this is not an isolated military action but has genuine public support. It's a long way to go before we declare victory but a good start has been made. The state of Pakistan and its government deserve all our support.
