Pakistan's economy will suffer adversely because of the deteriorating security situation and tensions on the borders, a top finance official has said.
ISLAMABAD: Pakistan's economy will suffer adversely because of the deteriorating security situation and tensions on the borders, while strict conditions imposed by the IMF in connection with an aid package will slow down growth, a top finance official has said.
"Pakistan is in a state of war in its tribal areas, tensions are high with India after the recent terror attacks in Mumbai and security conditions in Karachi and the rest of
the country are worsening," said Shaukat Tarin, the Prime Minister's Adviser on Finance.
"(The) economy cannot be divorced from the security (situation). It'll have adverse effects on the economy; you cannot expect Pakistan to grow in such conditions. The
Frankenstein will have to be put back into the bottle," he told the Dawn newspaper.
Tarin conceded that macroeconomic stabilisation in the wake of the USD 7.6-billion bailout package from the IMF will slow down growth, cause unemployment and push poverty rate.
He, however, defended the agreement with the IMF and the impact of its conditions on the economy. "That is the (only) choice," he said.
"We had taken all the tough decisions before we went to the Fund and had already begun implementing our stabilisation policies," he said, adding, "We went to IMF because our friends, apart from China, had encouraged us to do so before they stepped in to help us (overcome our cash flow problem)".
"Moreover, (I think) if we were left to our devices (and avoided going to the IMF), the chances were that political compulsions could have forced us astray. The IMF will prevent us from straying from the path of stabilisation," he said.
With inflation at 25 per cent, there is no scope to "inject liquidity into the economy" as it would "result in hyperinflation and negative growth for many years to come", he said.
"So we have a trade-off: cool down the overheated economy for a year or two and bring down inflation," Tarin said.
However, he was confident that foreign investors would "rush to Pakistan" after an improvement in macroeconomic fundamentals on the strength of the two-year economic
stabilisation programme.
"I believe that foreign investment during the current fiscal year will reach the previous year's level of USD 5 billion," he said.
Tarin also said that economic slowdown did not necessarily discourage fresh investments. "If the policy direction is correct, investors, both foreign and domestic,
will not hesitate to invest their money in this country in spite of a slowing economy.
"Once inflation is curtailed and interest rates are revised down and fiscal gap narrowed down to around three per cent of the GDP in two years, more investors will bring in
their money," he added.
Foreign investments are being made in telecom, banking and oil and gas sectors, as indicated by figures released for the first quarter of this fiscal. China Mobile alone is going to invest USD 800 million, he said.
Pakistan availed of the IMF's bailout package after the rupee plunged to Rs 84 to the dollar last month in the wake of Pakistan's failure to secure aid from its traditional allies
like China and Saudi Arabia.
The central bank's foreign exchange reserves too fell to USD 3.53 billion, less than the import bill of USD 3.81 billion for September.
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