The recent energy crisis coupled with political uncertainty after the assassination of Benazir Bhutto has shaken the confidence of the international and local investors. The International Financial Institutions (IFIs) like the Asian Development Bank (ADB) and the International Monetary Fund (IMF) have painted a bleak picture of Pakistan’s economy in terms of achieving its economic goals. According to the World Bank and ADB’s calculations, Pakistan’s economy will not be able to meet its projected target of 7.2 percent GDP growth in the year 2008. The growth rate is predicted to hover around 6.5 percent in the current fiscal year owing to a number of factors both at home and abroad. While oil prices remained high globally, the economy was marred by flawed economic policies at home. The current state of the political and economic crisis has led some critics to doubt if this figure of growth can be achieved. The fiscal deficit is expected to rise to 4.2 percent of the GDP from the envisaged target of 4 percent during the current financial year. The economy is likely to miss its inflation target of 6.5 percent because of increased food inflation. It is not just the IFIs raising alarm bells, the State Bank of Pakistan in its First Quarterly Report for 2008 admits that there is trouble ahead on the economic front. Besides informing that the economy will miss its GDP growth target of 7.2 percent, it says that the current account deficit, which is estimated to increase to 5.2 percent of GDP from 4.9 percent last year because of high oil prices and decrease in exports, is a threat to the economy. The foreign exchange reserves have come under pressure as the rupee is weakening against the dollar.

During the past eight years or so we were told by our economic managers that the economy was doing well and that there was no cause to worry. When Shaukat Aziz became our finance minister, Pakistan’s foreign debt was about $ 34 billion. After he became prime minister, he promised economic success that would result in the breaking of the begging bowl and a trickle down of the fruits of the economy. No efforts were made to increase investment — foreign or local. There was no diversification in exports. The only progress made was in the services sector, real estate and the stock market, where speculators created an artificial boom. The bubble had to burst sooner rather than later.

The recent law and order situation in the country, especially Karachi which is the financial hub of the country, and the energy crisis have darkened the prospects of the economy taking off in the near future. The violence in Karachi caused economic activity to come to a halt. The Karachi Stock Exchange (KSE) 100 index took a big plunge of 695 points and another 409 points the next day. Factors like institutional support and retail investment led the market to recover. Pakistan’s international credit rating went down in the backdrop of the violence. Turning a blind eye to the energy crisis has hit our economy hard, a manifestation of which is the closure of industrial units. The first and the major task before the economic mangers at the moment is to take measures to restore business confidence. Only a smooth political process resulting in the holding of free and fair general elections and the availability of maximum energy input to the industrial sector will give the ailing economy the required push.


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