Arrest this economic downturn

CONSIDERING a highly negative reaction of the international community to the suspension of the Constitution, proclamation of the Provisional Constitution Order (PCO) and imposition of emergency in the country by the Chief of Army Staff, the news that reputed credit rating agencies have downgraded Pakistan’s rating is not surprising. Standard & Poor’s (S&P) revised its outlook on the long-term foreign and local currency sovereign credit ratings of Pakistan on 6th November to negative from stable. According to Agost Benard, credit analyst of S&P, “the outlook revision reflects heightened and prolonged political uncertainty after General Pervez Musharraf’s decision (to suspend the Constitution) on 3rd November and its potential impact on economic growth, fiscal performance and external vulnerability”. In other words, the negative outlook mirrors the likelihood of an economic downturn resulting from the current political turmoil. However, the outlook could again be revised to stable if political pressures ease and constitutional rule is restored enabling the government to focus its efforts effectively on fiscal consolidation and reducing the economy’s vulnerability to the high debt and debt-service burdens. The risk of exceeding the targeted four percent fiscal deficit target is also very real if the government is unable to check expenditure overruns and revenue shortfalls. In addition to the potential fiscal impact, the political turmoil exposes the sovereign to external pressures if foreign direct investment and other equity inflows, which have funded about two-thirds of the country’s large current account deficit during the recent years, diminish significantly.
Moody’s Investors Service has also changed the outlook to negative from stable on the BI government foreign and local currency bond ratings following Musharraf’s imposition of emergency rule. A negative outlook was also announced on Pakistan’s B2 foreign currency country ceilings for bank deposits. Moody’s believes that the imposition of PCO rule represents further erosion in government’s governing capacity and underscores its heightened political instability. According to Aninda Mitra, Moody’s Vice President, “from a credit perspective, the emergency rule, and more important, the factors behind such an action could undermine Pakistan’s ability to sustain significant inflows of confidence-sensitive capital, which have financed a considerable portion of the country’s large current account deficit”. The downward revision in outlook on Pakistan by S&P and Moody’s Investors Service is unfortunate but understandable. It is regrettable because it is likely to shake the confidence of foreign investors, slow down the rate of increase in foreign remittances, and adversely affect the fiscal performance and overall economic activity in the country. The government’s plans for a sustained economic growth, reduction of poverty and generation of more employment would obviously be jeopardised. The move by international rating agencies is understandable because constitutional deviation and imposition of emergency rule by the COAS always lead to chaos and political uncertainty and it can’t be business as usual. The country usually faces sanctions and is regarded almost as a pariah state by the international community. Sensing the overall mood, multilateral institutions either walk away or prescribe extremely tough conditions for their assistance. A stage can soon be reached when capital inflows would tend to diminish significantly leading to a major slow-down in economic activity and undermining of macro-economic stability. It needs to be mentioned that political turbulence in Pakistan in the last few months had been shrugged off by foreign investors and domestic market participants, who remained confident that the country could somehow muddle through. It is obvious that after the PCO, the balance of risks has now started shifting to the downside. To pretend that adverse political developments would not harm the economy would be preposterous but that is what some of the economic managers of the country seem to be trying to demonstrate to the powers that be.
 

Remembering Arafat

THAT five got killed and hundreds injured marking Yasser Arafat’s third death anniversary in an environment typified by hostility and mistrust is a reflection on the Palestinian people’s condition today in the absence of the late leader’s unifying voice. It is unfortunate that the only certainty that has emerged in the time since Arafat is that his successor’s base was simply inadequate to carry on from where he left off, and the Palestinian people did not take long to sideline Fatah in favour of Hamas, indirectly setting off a violent clash that embarrassed and insulted everything Arafat stood for. Truth be told, things never really looked too bright for Palestinians at any time during Israel’s long occupation, even when Arafat held aloft their banner. But post-Arafat has been particularly painful, with Palestinians’ supposed representatives sadly doing just as much, in fact more, to harm them than those who have long sought finishing them off. When the painful economic blockade pulverised economic activity and starved people in their homes, Hamas and Fatah took to a virtual civil war, catching ordinary suffering people in the cross-fire in an episode that will forever remain the most disgraceful blemish on the collective Palestinian conscience.
Considering the knee-jerk-reaction politics Hamas and Fatah have indulged in since the former’s landslide victory in Jan ’06, it is little surprising that the West and Israel stand on the verge of permanently sidelining whatever political resistance remains. Even though the Bush-sponsored Annapolis conference has run into some bottlenecks, it will materialise soon, and cement a mediator not backed by a good majority of the Palestinian people. These are definitely not good times for the Palestinian people. And those claiming representation rights need to realise the glaring need for national reconciliation and unity, failing which any gain will be very temporary, even if it is materially beneficial on a personal level. The wider Arab world, especially Saudi Arabia and Syria, have made appreciable moves by keeping a distance from the upcoming conference till there is a guarantee of concrete action, beyond the usual — mere words. Palestinians, too, should pull up their socks and get their act together, lest they remain forever paralysed, unable to recover from the blow that Arafat’s passing dealt them three years ago.

—Khaleej Times