Business | Economy
Economic headache awaits new Pakistan government
With prices and domestic energy shortages, there are pressures on all fronts.
- Reuters
- Published: 00:20 February 13, 2008
Karachi: Whoever wins Pakistan's upcoming general election can be sure of one thing - there will be no economic honeymoon.
With annual inflation at its highest in over a decade, the rupee at six-year lows against the dollar, a hefty trade deficit, pressure from high international oil and food prices and domestic energy shortages, there are pressures on all fronts.
"There are numerous challenges ahead. There are heaps of trouble," said Asad Sayeed, director of private analysis group the Collective for Social Science Research.
"They (the previous government) have left a monumental mess, virtually on every front."
Compounding matters, whoever comes to power in what will mark a long-awaited transition from military to civilian-led rule, will also face the tug of populist expectations of a mainly rural electorate struggling in the face of high food prices.
Consumer prices in January rose 11.86 per cent from a year earlier, their highest level in 10-1/2 years, which analysts attribute to food shortages they say are due to a weaker agricultural crop and government mismanagement.
President Pervez Mush-arraf's caretaker government blames wheat smuggling to neighbouring Afghanistan and hoarding by shopkeepers for the shortfall.
"Inflation is high and it's accelerating, the government's borrowing is out of control," said Sakib Sherani, chief economist for ABN Amro Pakistan.
"The government's interest burden has gone up over the last few months. Its debt servicing burden has gone up, foreign exchange reserves are ... declining," he added. "So all in all, it's actually going to be a fairly challenging scenario for the next government."
The central bank last month revised down its economic growth forecast for 2007-08 (July-June) to 6.6-7.0 per cent, citing a weak farm sector that has been one of the engines of growth averaging about 7.0 per cent a year since 2002.
Pakistan's trade deficit widened sharply to $2.05 billion in January, double the previous month's gap, which analysts attributed in part to factory shutdowns in the wake of the assassination of opposition leader Benazir Bhutto on December 27.
And is the $160 billion economy facing a slowdown given political instability and macroeconomic worries?
"If not immediately, then certainly over the medium term," Sherani said.
"It may not have an immediate impact, but certainly when people make investment decisions, look out into the next 5-10 years, it'll start at some stage start clouding their investment sentiment as well."
See also Page 56
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