Opinions | Columnists
Politics adds to economic woes
As President Pervez Musharraf of Pakistan faces a countdown for his political future beginning with a move in the parliament on Monday to impeach him, the country's economic trends from the past decade are central to the debate surrounding the Pakistani leader.
- By Farhan Bokhari, Special to Gulf News
- Published: 23:22 August 11, 2008
As President Pervez Musharraf of Pakistan faces a countdown for his political future beginning with a move in the parliament on Monday to impeach him, the country's economic trends from the past decade are central to the debate surrounding the Pakistani leader.
Musharraf built up his credentials after he seized power in a bloodless military coup in 1999, seeking credit for overseeing a bold economic recovery.
Aided with billions of dollars in assistance from Western powers, notably the United States, Pakistan's economic growth gathered momentum, investments picked up and output from key sectors of the economy went up.
Till the middle of last year, Pakistan was fast emerging as a new frontier for investors - both seeking attractive equities as well as opportunities for direct investments.
A reflection of the robust mood during the last financial year (July 2006-June 2007) was seen by way of an unprecedented and staggering $8.4 billion arrive in Pakistan by way of different types of investments, including equities, direct investments and privatisation. That was more than twice the level of investments from just a year before.
Then came the downside of Pakistan's economic picture. Growing political turmoil which began when Musharraf sacked Iftikhar Chaudhary, chief justice of the supreme court, in March 2007, prompted unrest with unhealthy consequences for the economy.
A lawyers' movement and opposition parties' unrest targeting Musharraf made Pakistan appear an unwelcome place for investors. The timing of this growing political uncertainty coincided with fast galloping global oil prices which added to the woes of oil importing countries such as Pakistan.
Furthermore, the former government handpicked by Musharraf under prime minister Shaukat Aziz, began the new financial year in July 2007 with a record increase in development spending. This was indeed an attempt to win favour with the electorate in an election year.
But parliamentary elections first scheduled for January this year and then postponed by a month following December's tragic assassination of former prime minister Benazir Bhutto, only polarised Pakistan to the point where the previous government's spending plan failed to lift voter sentiment.
Just as the Bharatiya Janata Party government in India failed, some years ago, to win votes in spite of boasting its economic success through its "shining India" policy, Pakistan's political upset under the previous pro-Musharraf government was a ditto lesson repeated across the border from India.
Two-fold lesson
This upset indeed presents a clear two-fold lesson. On the one hand, the much publicised success in Pakistan tragically also oversaw a growing gap between the rich and the poor. Throughout the previous government, the plight of those living below the poverty line remained a constant theme.
The previous government was accused by a number of respectable Pakistani economists of fudging their statistics in the hope of masking what was otherwise a glaring reality.
The other lesson from the past was indeed that the previous government simply failed to recognise the significance of key institutions which are essential to consolidation of economic success.
While investors did indeed increase their exposure to Pakistan, most investors who either came to the country from outside or investors from within the country, simply took short term exposure.
Their most significant assurance of Pakistan's stability rested in the presence of individuals such as Musharraf and his linkages to the US.
Other more durable assurances such as the presence of legal institutions to support fair and just arbitration in the case of a dispute remained the missing elements.
It is, therefore, not surprising that Pakistan's liquid foreign currency reserves today are less than their life time high of more than $16 billion just last November. The depletion of the reserves has taken place mainly because of the flight of capital taking place from the country.
Anecdotal evidence suggests that many among the most affluent Pakistanis are relocating to the Gulf, seeking second homes in destinations such as Dubai. This is largely a consequence of the fast growing uncertainty in the country.
Other consequences of the growing uncertainty is indeed the decline of the Rupee which has lost its value against the US dollar by nearly 20 per cent since January 2008.
Caught in the midst of a growing turmoil with economic consequences, Pakistan's new leaders are single mindedly obsessed with winning their power struggle which is an ambition that is central to the impeachment exercise.
But as long as there is no clear demonstration of a credible effort to establish all the key parameters which are central for the comfort of investors, Pakistan's economy is unlikely to make a long term and sustainable turn around.
Farhan Bokhari is a Pakistan-based commentator who writes on political and economic matters.
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