Worsening of current account balance

THE performance of Pakistan’s external sector continues to deteriorate. According to the latest statistics released by the State Bank of Pakistan, the current account deficit of the country swelled to $6.138 billion during the first half of the current fiscal year (July-December, 2007) as against $4.679 billion in the corresponding period of 2006-07, depicting a jump of $1.459 billion or 31.1 percent. The widening gap in current account balance was largely attributable to the rising trade, services and income deficits and huge payments of interest on account of Euro Bond and other loans. Trade deficit increased by one billion to $6.40 billion, services deficit was up by $723 million to $2.53 billion and income deficit widened by $830 million to $3.28 billion. The current transfers of $5.53 billion, though substantial, could not arrest the deteriorating trend in the current account which was particularly alarming in the last two months (November, December, 2007) of the first half of the current fiscal. The country has failed to boost exports and meet the targets despite several steps taken by the government while continuous increase in imports is having a negative impact on the current account balance. The current external sector situation of the country is certainly disturbing and should not be taken lightly. The half-yearly figures indicate that full year’s current account deficit may cross the $12 billion mark, which could threaten the country’s ability to meet rising payments for import of goods and services, undermining the sustainability of present respectable growth rate and the achievement of other targets like employment generation and poverty alleviation. If the authorities continue to be indifferent to the evolving situation, foreign exchange reserves of the country could deplete over time and solvency of the country will be hard to maintain. The rising current account imbalance could be met through privatisation proceeds, floatation of Global Depository Receipts (GDRs), issuance of Eurobonds in the international market and borrowing from other sources.
While privatisation process and floatation of GDRs have not been so far resorted to due to unfavourable international and domestic environment, other options would increase the external debt burden of the country and be very costly in the long-run, especially when the international rating agencies have already downgraded the outlook on the long-term foreign and local currency sovereign credit ratings of Pakistan to negative from stable. Anyhow, these, at best, could only be temporary measures to tide over an adverse development and are not a substitute to address the fundamental weakness of the external sector which has largely stemmed from a soaring trade deficit. There is also a risk that the problem may be compounded further as the exports of the country could witness a further slow-down due to recessionary tendencies in the world economy. All of this calls for a thorough review of the situation with a view to prudently managing the external sector of the economy and ensuring its sustainability. It is good to see that the exchange rate of the rupee is market determined and the monetary authority of the country is making serious efforts to contain inflationary pressures by tightening the policy. The cut-off yield on all tenures of Pakistan Investment Bonds (PIBs) have been substantially enhanced in the auction held on 29th January and there is a strong speculation of further discount rate hike in the market.

Betrayal of Afghanistan

Three reports issued this week highlight the ways in which the outside world is failing the Afghan people and predict that if the international community does not improve its performance, Afghanistan will tumble back into dissent and chaos and the forces of bigotry will once again seize control. Perhaps the most damning of the findings comes from the aid agency Oxfam which warns that not only has much of the promised aid been not been delivered to Afghanistan but that which has is often wasted. The loss stems from poor project coordination, the engagement of expensive outside consultants and the high prices being charged by international contractors. The report also says that some aid is also being lost when siphoned off by corrupt local politicians and officials. Though it is right to condemn dishonest Afghans, Oxfam does not go on to make the point that the behavior of outside consultants is equally corrupt. The rebuilding and economic advancement of Afghanistan was not supposed to turn into a payola for international firms. It was supposed to give Afghans the first chance in decades to build some stability and prosperity into their lives. That is not happening. And because it is not happening, Afghans struggling to feed their families are turning increasingly to the warlords over their communities and in agricultural areas are cultivating the opium poppy.
As despair and crime take a deeper hold, so will lawlessness and so will the task facing the Afghan security forces and the NATO troops alongside them. It is the security situation which one of the American reports highlights, warning it is deteriorating because of a lackluster military performance by NATO. Only a few of the NATO contingents are actually engaged in any fighting. Many member countries have only supplied troops on the basis that they will be posted to provinces as yet untouched by violence or will be used only for training and supply duties. Much of this disapproval stems from the view in Europe that Afghanistan is an American project. The widespread condemnation of Bush’s blunders in Iraq is also applied, falsely, to what is seen as another US-led operation in Afghanistan. Such an analysis is both very dangerous and very wrong. Everything that has happened in Afghanistan has been done under UN mandates. And in the key two loya jurgas and the presidential and parliamentary elections, major political progress was made and great hopes were raised among Afghans. The international community had promised effective financial and technical aid in great quantities. Those hopes are now being dashed and Afghans being increasingly tempted to find their own solutions by themselves. Both militarily and economically, Afghanistan is being betrayed, thanks to broken donor promises, cowardly governments and the incompetent mishmash being made of implementing much of the aid that has been delivered. It is shameful.

—Arab News