Peshawar blast adds to investor woes
By Syed Fazl-e-Haider
QUETTA, Pakistan - The rising incidents of terror attacks in Pakistan,
particularly in its key commercial centers, are, beyond the human death toll,
hitting trade, business and industrial activity and drying up much-need foreign
investment.
Foreign direct investment (FDI) tumbled by more than 58% to US$463 million in
the three months through September, the first quarter of the present fiscal
year, compared with $1.12 billion during the same period last year.
That was before the most recent spike in violence, which is blamed on Taliban
and al-Qaeda-linked forces and which has
claimed the lives of more than 240 people this month alone. In the latest
attack, a car bomb explosion on Wednesday at a crowded market in the country's
northwestern city of Peshawar killed 105 people and injured about 200 others.
Leading industries, particularly petroleum, textiles and cement, suffered
negative growth in the first two months of the fiscal year, while the main
stock market shed 7% last week after making up in the past nine months most of
the huge losses made last year.
In the wake of the Peshawar blast, the benchmark Karachi Stock Exchange (KSE)
100-share index shed 0.69%, or 63.85 points, to close at 9,251.84 points. The
KSE has gained 57.74% this year after losing 58.33% last year, with portfolio
investment surprisingly jumping 220% to $208 million during the first quarter
against a net outflow of $173 million during the same period last year.
"Despite strong corporate results and good valuations, the deteriorating law
and order situation is keeping fresh investment at bay," Reuters reported,
citing Asad Iqbal, managing director at Ismail Iqbal Securities.
The industrial sector faces turbulent times, growing a mere 0.17% in the first
two months of this fiscal year, according to the Federal Bureau of Statistics
(FBS). Added to the security problem, the high cost of doing business and
growing energy prices have also hampered growth. For the current financial
year, the government has allocated 80 billion rupees (US$956 million) to help
the textile and clothing sector, which performed poorly in the previous
financial year.
Asian countries have practically abandoned strife-torn Pakistan, with their
investment turning to almost zero during the first quarter, according to the
central bank.
Even China, the country's closest ally, held back on its investments,
preferring to keep its money safe instead of sending it to cash-strapped
Pakistan. Although Beijing recently declared that it would complete all the
projects on which Chinese are working, China removed its multi-billion dollar
coastal oil refinery project at Gwadar, in southwest Balochistan province, from
its financial development plan for the current financial year.
On the other hand, FDI from the United States, while down on last year's first
quarter, reached $165 million as against $210 million previously. Critics say
the US has invested in the country because of its commitment to the war on
Islamist extremists.
Meanwhile, officials in Islamabad fear that Pakistan may have to seek an
additional $874 million from the International Monetary Fund (IMF) in case an
annual grant worth $1.5 billion under the Kerry-Lugar bill passed by US
legislators runs into difficulties.
Critics in Pakistan are concerned at the numerous conditions attached to the
bill, which would treble non-military aid to Pakistan to $7.5 billion over the
next five years. At the same time, some analysts believe that Pakistan's anemic
economic growth, rising debt burden, poverty and unemployment, and falling FDI,
may force Islamabad to accept the terms of the bill.
The $1.5 billion annual assistance, which is entirely a grant under the
Kerry-Lugar bill, will create fiscal space that could enable the Pakistan
government to spend on development projects approved under an ambitious public
sector development program worth 646 billion rupees this fiscal year. Under the
government of former president, Pervez Musharraf, the country on average
received $370 million each year as a grant from the US.
The country's earlier request to the IMF for an additional loan of $3.2
billion, which increased its borrowings from the fund to $11.3 billion from
$7.6 billion, was premised on the return of this amount to the IMF as and when
funds materialized from countries known as the Friends of Democratic Pakistan.
The country's total foreign debt rose by $11.7 billion to $55 billion in the
past two years. During the fiscal year ending June 2009, the country received
loans worth $8.8 billion from international donors and countries, including the
IMF. The debt servicing burden has progressively reduced the government's
ability to undertake much-needed infrastructure development projects hampering
the country's efforts for social and economic development.
Islamabad has so far received a total of $4.86 billion in loans from
international financial institutions, with $1.5 billion from Asian Development
Bank, $1.17 billion from the World Bank and a $656 million short-term loan from
the Islamic Development Bank for oil purchases.
Gross domestic product (GDP) growth is expected to remain unchanged at 2% in
the current fiscal year, the IMF said in its Regional Economic Outlook. While
positive growth, the economy is in virtual recession as 2% growth in 2008-09
fiscal year was barely enough to keep up with population growth of almost 2%.
Also dragging down the economy is inflation projected by the IMF to be 13.9%
this year, a decline from 20.3% last year, but far higher than the 9.5%
government target.
The consumer price index surged 10.7% in September compared with a year
earlier, according to the FBS. The wholesale price index gained only 0.49% in
the same month from a year earlier and 0.17% against August. The strongest
gainer was food, up 1.73% from September 2008.
Syed Fazl-e-Haider(www.syedfazlehaider.com) is a development
analyst in Pakistan. He is the author of many books, including The
Economic Development of Balochistan (2004). He can be contacted at sfazlehaider05@yahoo.com
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