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Shadow lingers on Pak economy

Islamabad, Aug. 17: Until 9/11, the world treated it as a pariah for its backing of the Taliban and militants in Kashmir. But today Pakistan is reaping unprecedented dividends from its “unconditional support” to the war on terrorism.

The events of 9/11 meant a virtual turnaround for the economy of the south Asian nation. When the suicide bombers struck, Pakistan was still reeling under western economic sanctions for conducting nuclear tests in 1998. Annual credit flows and investment had shrunk to a couple of hundred million dollars, foreign exchange reserves dwindled to less than $300 million and most foreign investors had left the country.

Additionally, the International Monetary Fund had linked loans to a stringent structural adjustment programme.

Today, international finance institutions are offering loans and grants. Major western donors have lifted economic sanctions and rescheduled Pakistan’s debt. As a result its foreign exchange reserves have surged beyond $11 billion. Foreign debt, once a staggering $38 billion, is down by $2 billion with the government even contemplating early repayment of some loans.

In July, the Bush administration paved the way for $1.5 billion in grants and re-profiling $12.5 billion of bilateral debt with the Paris Club, which provides credits to developing nations. Remittances by expatriate Pakistanis have also more than doubled from less than $800 million a year to over $3 billion since 9/11.

These factors have combined to revive investor confidence and recently sent the Karachi Stock Exchange index beyond the 4000 mark for the first time in Pakistan’s history.

Finance minister Shaukat Aziz believes the “expression of appreciation for Pakistan by President George W. Bush and the promised $3 billion package would help enhance cash flows to Pakistan and attract fresh investments”.

But economic experts see some external factors as major impediments.

“Negative travel advisories being issued by major countries to their citizens and exaggerated accounts of events have had a very adverse impact on the investment climate,” claimed Ishrat Hussain, Pakistan’s central bank chief.

Most western nations declared Pakistan unsafe following a string of attacks on Christian and western targets since March 2002 and advised its nationals not to travel to this country unless necessary.

With a population growth of close to 3 per cent, Pakistan needs a couple of billion dollars a year investment to generate new employment. But money is hard to come by in view of the negative image that accompanies Pakistan’s crackdown against radical pro-Taliban and pro-al Qaida groups.

“Unless major countries remove their travel advisories and until the threats by anti-US and anti-Musharraf groups loom, fewer investors would be ready to risk investments,” says Saqib Sheerani, chief economist with the ABN-Amro Bank in Islamabad.

“Wooing domestic and foreign investment remains a daunting task for the government because investors would still opt to play cautiously,” says Shahidur Rehman, an economic affairs analyst.

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