Pakistan’s economic recovery

Donors’ US$20 billion support will speed up Pakistan’s economic recovery

KARACHI — After the approval of more than US$20 million in credit and grants by donors, the economy of Pakistan is showing strong signs of recovery, economists said on July 9.

“Foreign exchange reserves, the balance of payment position, inflation and mark-up rates have shown a significant improvement in last few months, and that will help to pull the economy of Pakistan out of recession and put it on the path towards growth,” economist A.B. Shahid said. Reserves have improved to $12 billion this month from $7 billion in January. The current account deficit shrunk to $340 million in the last quarter, down from $3.5 billion in preceding quarter.

Inflation in July declined to an annual rate of 10 percent, down from 21 percent in January, and the Karachi Inter-Bank Operations Rate fell to 12.5 percent from a high of 16 percent over the first half of this year, Shahid added.

“The International Monetary Fund [IMF], World Bank [WB], Asian Development Bank [ADB] and major donor countries such as the U.S., the UK, Japan, China, Germany and France have approved more than $20 billion in economic assistance for Pakistan over the next five years. That has revived the business confidence and averted the threat of default,” economist Dr Ashfaque Hasan Khan said.

Last November, Pakistan faced the threat of default when State Bank of Pakistan foreign exchange reserves fell to $3.2 billion, barely enough to pay for one month of imports, Khan said. The IMF approved a $7.6 billion bailout package that month, and also disbursed another $3.1 billion on an emergency basis, which eliminated the immediate danger of default and revived the confidence of the investors and the businessmen, he added.

Khan said that despite the global and domestic economic crisis, Pakistan's economy grew 2.0 percent in FY 2008-09. During FY 2009-10 the country is expected to achieve growth of 3.5 percent.

“FY 2009-10 could be a year of fast economic recovery, as some key economic indicators reflect encouraging improvements over FY 2008-09,” economist Dr Shahid Siddiqui said. To ensure that is the case, the government should further trim inflation, mark-up rates, overcome the energy crisis and enhance exports and the tax-to-GDP ratio to stimulate recovery and growth even further, he asserted.

Courtesy Central Asia Online