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14 - 20 July , 2012
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ECONOMIC REVIEW
Will Opening Up Nato Supply Routes Have Any Impact On Pakistan's Economy?
Only a tactful handling of situation can ensure smooth sail
by SHABBIR H. KAZMI

State Of The Economy

Opening up of Nato supply routes has evoked mixed response from various quarters. But there are growing apprehensions that if demonstrations being staged by Difa-i-Pakistan Council (DPC) turn violent, the feared losses could be more than the anticipated benefits. Those believing that tense Pakistan-US relations were having a toll on Pakistan's economy are optimistic after the opening of the Nato supply routes. However, the overall perception is that the potential losses could be more compared to the anticipated benefits.
There is a perception that easing of tension between the two countries could open new vistas for Pakistan. The optimists anticipate that USAID's plan will help Pakistan in overcoming energy crisis and reduction in load shedding of electricity and gas will help in boosting GDP growth rate. However, some of the critics term it 'hoping against hope'. They say USAID agenda just cannot help in improving cash flow of the distribution companies. Any attempt to revamp transmission and distribution network will remain a futile effort unless blatant electricity and gas thefts are contained and recovery of outstanding dues improved.
As anticipated a long march against resumption of Nato supplies has been started by DPC and there are growing fears that participants could turn violent if force is used to stop them from entering the federal capital, Islamabad. Though, PML-N has not joined DPC officially, its decision of not stopping the march towards the federal capital could cause serious problems for the ruling junta. PML-N is often alleged of having deep rooted relationship with some of the banned religious outfits, playing a major role in DPC.
One of the points to celebrate is that opening of supply route will pave way for the payment of around State Of The EconomyUS$1.2 billion under CSF over the next seven months and another US$2 billion in the meantime under different heads. To some experts the amount looks reasonable to contain erosion of country's foreign exchange reserves. But others say that Pakistan has to pay around US$3.8 billion to the IMF during FY13; the situation therefore remains far from satisfactory. They insist that sooner or later Pakistan will have to approach the IMF for another standby program. Therefore, improvement in the relationship between the two countries could save Pakistan from imposition of stringent conditions.
While resumption of foreign direct investment (FDI) may take slightly longer, inflow of portfolio investment has already started. This perception is not detached from ground realities because after following through five weeks of consecutive net FIPI outflows, this past week recorded a net FIPI inflow of US$9.4 million against an outflow of US$5.6 million a week earlier. Since pressure on rupee has also eased, the overall situation bodes well for Pakistan.
Overall strength of Pakistan's equities market has been witnessed on the basis of 1) likely improvement in US-Pakistan relationship following opening up of Nato supply routes, 2) overall improvement in fertiliser sector sentiment following no increase in GIDC for feedstock gas against earlier expectation of a Rs103/mmbtu hike, reduction in fuel stock cost by Rs35/mmbtu and record high urea offtake in June and 3) sequential increase in cement offtake. Improved production of urea can help in contain erosion of foreign exchange reserves and improvement in cement export can help in earning extra foreign exchange.
Improvement in Pakistan's foreign exchange reserves supported by receipts under CSF and the remittances received may pave way for the issue of Letter of Comfort by the IMF, which in turn can lead to fresh disbursements by other multilateral financial institutions i.e. World Bank, Asian Development Bank and IFC. As such Pakistan's performance for the just concluded FY12 is not all that disappointing. The country is likely to achieve above 3.5% GDP growth rate and exports of US$25 billion.
State Of The EconomyThe Government of Pakistan has been attracting a lot of criticism for not taking the right steps to ensure uninterrupted supply of electricity at affordable cost. It is also being said that energy crisis is due to gross mismanagement rather than demand exceeding supply. According to a media report Ministry of Petroleum & Natural Resources has failed in implementing a plan to bring up to 800 million cubic feet gas per day (mmcfd) into the system. The plan was devised by the Ministry in January this year and by the end of June, an estimated 800mmcfd gas was to be added in the system to overcome the current energy crisis.
The ruling junta has to handle the emerging situation tactfully. Some analysts fear that anti-US demonstrations being staged throughout the country can turn violent if the march continues towards the capital, an island still outside the control of provincial government. In the recent past the United States has supported regime change programs in the Middle East and North Africa. The Obama administration can also turn 'hostile' and try to install a new government in Pakistan under its favorite plan. As such there is growing resentment against the incumbent government that has made Pakistan subservient to policies of the United States.
Another point of concern is that Pakistan is likely to be hit one gain by torrential rains and subsequent deluge this year. There are fears that not enough precautionary measures have been taken to face this mammoth challenge. If these fears come true and standing crops and livestock are washed away, accelerating GDP growth rate and achieving export targets will not be possible. Experts say this year Pakistan may face as bad a situation as it faced in 2010.
Some experts say policymakers have to come up with indigenous plans to face various challenges. Any outside help may help in overcoming the immediate trauma but sustainable solutions have to be found to overcome some of the most contentious problems being faced by the country. The top of the agenda item should be following good governance, containing budget deficit and following export-led policy to overcome current account deficit. Wherever there is a will there is also a way.


 
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