KARACHI, Pakistan - Islamabad's tardiness in naming a finance minister to
succeed Shaukat Tarin, who resigned on February 23 to pursue his own business
interests, may delay the release of US$1.2 billion from the International
Monetary Fund (IMF), part of a bailout package agree in November 2008.
President Asif Ali Zardari and Prime Minister Yousuf Raza Gilani have failed to
agree on the appointment of Tarin's replacement despite a warning from the
finance ministry that the absence of a minister with the right credentials
could delay the release of the IMF funds, according to Business Recorder. The
name of Tarin's successor needs to be incorporated in papers to be circulated
to IMF directors for a meeting on March 24 to obtain approval for the release
of the $1.2 billion.
Gilani on Tuesday told a meeting of the cabinet's Economic
Coordination Committee that Pakistan's economy was heading towards stability
and progress, with important targets achieved over the past two years. But
while the prime minister, who last chaired an EEC meeting in October, 2008,
praised Tarin for his work, he gave no indication when a successor would be
appointed.
Islamabad had to turn to the IMF for a $7.6 billion emergency loan package in
November 2008 to meet its international obligations amid a widening current
account deficit, which reached $15.6 billion that year. The IMF increased its
loan to $11.2 billion in 2009.
The government's economic situation has since deteriorated. External debts and
liabilities are now $55.68 billion, or one-third of GDP, up from $46.16
billion, or 27.6% of GDP, in June 2008, according to the central bank.
The rising cost of servicing that debt - $375 million, or 0.2% of GDP in the
six months to December - is limiting the government’s ability to undertake
infrastructure and social sector development projects. A shortage of cash has
already forced the government to slash the Public Sector Development Programme
(PSDP) to 250 billion rupees ($2.9 billion) from the 421 billion rupees
targeted in the budget for the fiscal year that ends on June 30.
The government's cash woes are being exacerbated by delays in reimbursements
from the Coalition Support Fund (CSF) for expenditures incurred in the
country's fight against terrorism. Islamabad has received only $897 million of
its $1.4 billion claim to the CSF for 2008 spending. The delays have been
linked by commentators to visa difficulties facing US officials who are to
oversee aid programs in Pakistan. At the same time, military spending has
increased and the poor security situation in the country continues to deter
investors from overseas.
As recently as Monday, at least 13 people were killed and more than 80 injured
when a suicide bomber detonated an explosives-laden vehicle in front of a
police special investigation unit office in Lahore, Punjab province.
The CSF appears to have become another lever for the Americans to press
Pakistan in a relationship fraught with mutual suspicion, said a recent Dawn
editorial. "The impact, though, should not be exaggerated: cooperation between
the two countries is continuing on many other fronts and fiscally the IMF is
still taking a benign view of Pakistan's escalating budget deficit. And yet it
is totally unnecessary: Pakistanis using delay tactics over visas; Americans
choking CSF flows - both sides need to stop needling the other on peripheral
issues."
Cash received from the Friends of Democratic Pakistan (FoDP), a group of 24
countries and organizations, has also fallen short of expectations. Of $5.2
billion pledged at a donor conference in Tokyo last April, Pakistan has
received only $571 million, with $260 million more expected before June 30.
That falls well short of the $2.3 billion that had been anticipated this
financial year.
As the fiscal year enters its last four months and military expenditure mounts,
the gap between government spending and revenues is rising to 5.3% of gross
domestic product (GDP), instead of the targeted 4.9% for current fiscal year,
according to officials. The government has to collect 613 billion rupees in the
remaining four months of this fiscal year to meet an overall tax collection
target of 1.4 trillion rupees.
Higher spending on security is failing to improve the country's attraction to
overseas investors. Net foreign investment has fallen more than 34% during the
current fiscal year from the same period 12 months earlier, according to the
central bank. Foreign direct investment dropped by 54.6% in the seven months
through January.
The overall law and order situation, and not just terrorism, is the main
concern for potential investors, says the annual Perception Survey Report of
the Overseas Investors Chamber of Commerce and Industry (OICCI) 2009 released
last week.
"While there is an understanding of the war on terror, what now disturbs our
investors is the weak hold of the law bodies and the rising rate of street
crime such as robberies, theft etc in the cities," reported The News, citing
OICCI president Farrukh H Khan.
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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