The fact that President Pervez Musharraf has himself met with the State Bank of Pakistan (SBP) governor to discuss the findings in the central bank’s quarterly report for the first quarter of the current fiscal year underscores how concerned the government is about the current economic situation. In its report for July-September 2007, the SBP has noted that, after a good performance over the past five years, all key financial indicators registered a decline, and that this trend, if not checked, could see the growth rate for 2007-2008 drop below the set target of 7.2 percent.
The report notes that an increase in government borrowing from the central reserve, as a result of growing fiscal imbalance, could fuel inflationary trends. Possible means to tackle the situation have been discussed with President Musharraf, who is understood also to have brought up the issue of the country’s future economic direction with former prime minister and finance minister Shaukat Aziz, before he left for London. Musharraf has already stated he sees economic gains made over the past years as a key achievement.
Significantly, the SBP has identified growing political uncertainty ahead of elections as a factor in declining investor confidence. The extent of this uncertainty has of course grown manifold over the past few weeks, and this will only further detract potential investors. The images broadcast around the world of banks being burned, vehicles set alight and shops ransacked in Karachi and in other cities, with the writ of the state having seemingly collapsed entirely, will only add to the perception that Pakistan is too dangerous an environment for the safe conduct of business or for the setting up of industry. The fact that the stock market fell immediately after Benazir Bhutto’s death and the rioting that followed, and only now has begun to climb once more highlights how swiftly political turmoil can effect confidence.
Until this perception can be altered, and dwindling faith in Pakistan’s economic and political stability built, the risks of decline identified by the SBP will remain in place. Recent developments, such as the current energy crisis, which has affected both the power and gas supplies, have added to the woes of industrialists and to the perceptions regarding the risks involved in investing in Pakistan. Restoring stability is thus critical to any recovery from the economic perils being faced. If this process does not begin soon, Pakistan risks losing much of what it has gained since 2002, in terms of bringing investments into the country and pushing up growth rates. The administration must also demonstrate that it is capable of maintaining law and order, and protecting business interests at all times.
For the moment, it seems likely that the current sense of uncertainty will continue till the February elections. Conjecture regarding the possibility of a further delay in the polls only adds to the sense of unease. For these reasons, it is essential the elections be held on the date now set for them, and that they be conducted fairly and peacefully, so the country can regain the normalcy that is essential to check the current economic decline before long-term damage is inflicted.