Ed­i­tor’s Desk

Enterprise - - Contents -

For­eign Di­rect In­vest­ment (FDI) has almost reached next to noth­ing in Pak­istan. The rea­sons for this are many – from a bad law and or­der sit­u­a­tion to an econ­omy that is down in the dumps. On the other hand, cap­i­tal is also ‘fly­ing’ away from Pak­istan. In fact, this ‘flight’ is noth­ing new and has gone on for decades. Had that not been the case the Fi­nance Min­is­ter would not have ad­mit­ted, some time back, that Pak­ista­nis have ac­cu­mu­lated over $200 bil­lion in banks abroad. Even then, there were pe­ri­ods when the coun­try had po­lit­i­cal sta­bil­ity and flight of cap­i­tal slowed sub­stan­tially while di­rect for­eign in­vest­ment (DFI) in­flows were huge.

The pro­longed protests over rig­ging of the 2013 elec­tions (ad­mit­ted by all po­lit­i­cal par­ties ex­cept PML-N and the Elec­tion Com­mis­sion), long-awaited ver­dicts on a pe­ti­tion ques­tion­ing the Prime Min­is­ter’s in­tegrity and cor­rup­tion by his gov­ern­ment, es­ca­lat­ing fis­cal mess, and the like­li­hood of a regime change, have again cre­ated in­sta­bil­ity, which is trig­ger­ing flight of cap­i­tal.

Fuel and power short­ages and crip­pling hikes in their price hurt the econ­omy for years, but while in­ca­pac­i­ties caused by th­ese deficits dam­aged the coun­try’s risk per­cep­tion glob­ally and sapped en­tre­pre­neur­ial con­fi­dence, the chances of emer­gence of a regime tough on ac­count­abil­ity is now fright­en­ing those who have been avail­ing the ben­e­fits of weak­nesses in the ac­count­abil­ity sys­tems.

This scared lot in­cludes politi­cians, bu­reau­crats, and busi­ness­men, who worry not just about ac­count­abil­ity for sidelin­ing their obli­ga­tions, but also about se­cur­ing the wealth they have ac­cu­mu­lated il­le­gally. This set­ting suits those el­e­ments who pro­mote flight of cap­i­tal to safe havens.

Ac­cord­ing to the Pak­istan Bureau of Statis­tics, dur­ing July-Septem­ber 2014 Pak­istan’s trade deficit amounted to $6.5 bil­lion - an in­crease of 45 per­cent over its $4.48 bil­lion level in the cor­re­spond­ing pe­riod last year - be­cause, while im­ports jumped up to $12.5 bil­lion com­pared to their $11.17 bil­lion level last year, ex­ports dropped to $6 bil­lion com­pared to $6.7 bil­lion last year.

This neg­a­tive trend hasn’t yet been seen as a warn­ing sig­nal by the Fi­nance Min­istry that had fore­cast ex­ports to rise to $27 bil­lion over their 2013-14 level of $25 bil­lion, and the ru­pee to stay be­low Rs. 98 to one US dol­lar level. More so, in Septem­ber 2014 alone, trade deficit in­creased by 102.7 per­cent - to $2.38 bil­lion com­pared to its $1.17 bil­lion level in Septem­ber last year.

Ex­pand­ing trade deficit isn’t the only worry; the other is the higher load of ex­ter­nal debt ser­vic­ing, cour­tesy in­creased ex­ter­nal bor­row­ing. De­spite in­crease in in­ward re­mit­tances by Pak­ista­nis abroad, the blud­geon­ing trade deficit will in­flate the cur­rent ac­count deficit, which holds out the prospect of de­fault­ing on ex­ter­nal debt ser­vic­ing - some­thing Pak­istan can­not af­ford.

If this trend is not con­tained, Pak­istan could end up with the largest-ever trade deficit - around $26 bil­lion - with grave con­se­quences; large cap­i­tal out­flows for in­vest­ing abroad could make them worse. Yet, while the fis­cal sce­nario is wors­en­ing, amaz­ingly, nei­ther the fi­nan­cial mar­kets’ reg­u­la­tor, nor the min­istries of Fi­nance and In­for­ma­tion re­acted to this cam­paign.

The po­lit­i­cal sce­nario is forc­ing trou­bled gov­ern­ment min­is­ters to fo­cus ex­ces­sively on pol­i­tick­ing, though gov­ern­ment’s pru­dent re­ac­tion to cam­paigns in­duc­ing flight of cap­i­tal could have man­i­fested good gov­er­nance, though be­lat­edly, and could have slowed the slide in the gov­ern­ment’s rep­u­ta­tion for gov­er­nance; not do­ing so adds new di­men­sions to its ap­a­thetic pro­file.

To date, the State Bank of Pak­istan (SBP) hasn’t re­laxed any of its reg­u­la­tions gov­ern­ing out­ward for­eign re­mit­tances. As such, out­flow of wealth for in­vest­ing in ven­tures abroad can take place only via the “hawala” chan­nel, but by keep­ing quite on this ad­ver­tis­ing cam­paign, the gov­ern­ment may end up boost­ing cap­i­tal flight via this il­le­gal chan­nel.

For the Fi­nance Min­istry, the pru­dent course was to dis­cuss this is­sue with the SBP and the Min­istries of In­for­ma­tion and Eco­nomic Af­fairs, and to­gether pre­pare a strat­egy (not be ques­tion­able legally) to stop such econ­omy-dam­ag­ing cam­paigns, and there­after ask th­ese min­istries to is­sue ap­pro­pri­ate di­rec­tives to the me­dia based on that strat­egy.

How­ever, noth­ing of the sort hap­pened, and the Min­istry of In­for­ma­tion didn’t is­sue any di­rec­tive mak­ing it manda­tory for the me­dia to ob­tain its clear­ance be­fore dis­play­ing the ad­ver­tise­ment-types in ques­tion, though the me­dia now of­ten com­pro­mises on its ‘self-pro­claimed’ pa­tri­o­tism to earn rev­enue from ad­ver­tise­ments. This is in­ac­tiv­ity man­i­fests bad gov­er­nance yet again.

The route to eco­nomic sal­va­tion is build­ing an en­vi­ron­ment wherein peo­ple feel se­cure and so don’t strive for stash­ing away their wealth abroad. Although ‘safe havens’ will soon be­come his­tory (even Switzer­land is now pre­par­ing to give up deal­ing in black wealth), this shouldn’t lure politi­cians into be­liev­ing that their bad gov­er­nance will now be funded by do­mes­tic higher re­sources.

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