Pakistan short of everything except
crises By Syed Fazl-e-Haider
QUETTA, Pakistan - There is a crisis of
crises facing Pakistan. While the political crisis
centering on President Pervez Musharraf and the
future of general elections scheduled for February
18 dominate the headlines, this country of
160-plus million people faces a tangle of
escalating problems, extending from energy
shortages to soaring wheat prices to a cotton
industry facing meltdown.
Not least, there
is a crisis of confidence among foreign investors
and a leadership crisis among political activists
after the assassination of former prime minister
Benazir Bhutto on
December 27.
Climbing
prices of wheat, and therefore of flour, an
essential component of everyday diet, is hurting
the general population, a power crisis is eroding
industrial growth and so hitting the whole
economy, bringing losses in revenue and exports.
The political uncertainty in wake of
Bhutto's killing has caused an outflow of foreign
portfolio investment from the equity market. By
January 8, the cumulative outflow reached
US$37.163 million, leaving only $2.594 million
invested. According to figures from Pakistan's
central bank, United States and United Kingdom
investors withdrew $13.3 million from the equity
market on January 8.
Over $2.499 billion
came into the country during the current fiscal
year from July 1, 2007 to January 8, 2008, little
more than an outflow of over $2.496 billion during
this period. In the current fiscal year, US
investors pulled out $1.183 billion, British
investors $885 million, Swiss investors $56
million, Sri Lankan investors $63 million, Hong
Kong investors $188 million and Australian
investors $48 million.
The stock market
quickly recovered from a 10% decline in the wake
of Bhutto's killing on December 27, but sentiment
remains negative and the country's law and order
situation is discouraging for foreign fund
managers. On January 14, 12 people were killed and
many injured as bomb exploded in Karachi's
industrial area of Landhi. A suicide attack in
Lahore on January10 killed at least 25 people,
including 19 policemen.
The prevailing
political and law and order situation and concern
raised by the head of UN atomic watchdog on
whether Pakistan's nuclear assets could fall into
extremists' hands helped to weaken the confidence
of foreign investors, raising local analysts fears
that the remaining $2.59 million of foreign
portfolio investment could evaporate before the
end of current fiscal year.
Power
crisis Industry is meanwhile battling with
a power deficit of up to 3,600 megawatts (MW)due
to low water levels at hydropower dams and damage
to two main power lines attacked during the three
days of violence that erupted after Bhutto's
assassination.
Two main power transmission
lines were blown up on January 1 in Sindh
province, creating a shortfall of 1,000 MW. The
business community complain that lopsided and
unplanned shutdowns have resulted in closures in
almost all industries. Subsequent production
losses will be reflected in further pressure on
exports and lead to increased imports.
Water levels have fallen by up to 32% in
comparison with last year, according to the
Pakistan Electric Power Company (PEPCO).
Pakistan's current installed capacity is around
19,845 MW, of which around one-third is
hydroelectric. Much of the rest is thermal, fueled
primarily by gas and oil. PEPCO also blames
independent power producers (IPPs) for the power
crisis, as they have been able to give PEPCO only
3,800 MW on average out of 5,800 MW of confirmed
capacity. Most of the IPPs are running fuel stocks
below the required minimum of 21 days.
All
the steel-melting plants and re-rolling steel
units were closed on January 2 by order of the
government, which also instructed hundreds of
textile mills to reduce operations to conserve
power. The government believes this will help save
850 MW of electricity. The closure of steel units,
according to the mill owners, could cause huge
losses to the industry as it affects about 100
steel melting units and 500 auxiliary re-rolling
units.
The power crisis that started with
the new year has raised prices of steel products
25% and caused a loss of revenue to the
government, which receives 1.28 billion rupees
(US$20.5 million) monthly in terms of sale tax on
production from the industry.
Pakistan has
a steel market of 7.2 million tons, including 4.5
million tons for rolled and 2.7 million tons for
flat products. A few operational units in the
country face raw material shortages due to the
closure of melting units. The damage extends to
the construction industry, while also threatening
unemployment of 140,000 skilled and more than
250,000 unskilled employees in 127 melting and 350
re-rolling units.
The reduction in
operations of textile mills is a further blow to
an industry already showing a dismal performance
due to increasing costs, competition from China
and a shortfall in the cotton crop. Textile
exports, which make up 65% of the country's total
exports, grew only 2.5% in first quarter of the
present fiscal year compared with 14.3% during the
same period a year earlier.
Flour
crisis The price of wheat flour has shot up
amid a meagre supply of wheat, smuggling to
Afghanistan and hoarding by local millers, driving
the price of a 100-kilogram bag of wheat up by 300
rupees to 2,100 rupees. The suspension of cargo
transportation in the wake of riots in Sindh after
the killing of Bhutto further curbed wheat supply.
The Economic Coordination Committee (ECC)
of the federal cabinet has now decided to import
an additional 0.5 million tons of wheat on top of
an earlier agreement of 1 million tons. The
Planning Commission of Pakistan estimates that the
next wheat crop will fall 3 million to 4 million
tons short of its previous 24 million ton target,
possibly coming in at 21 million to 22 million
tons.
Wheat imports during the current
fiscal year of about 2 million tons will place an
extra burden of more than $1 billion on the
national kitty.
The failure to meet the
2007-08 wheat production target of 24 million tons
comes after the 2006-07 harvest of 23.5 million
tons beat that year's benchmark. According to
official sources, growers retained 13.5 million
tons for their own consumption and 1 million tons
for use as seed. About half a million tons was
exported and about 1 million tons was bought by
millers.
The government purchased 4.3
million tons and the remaining 2.7 million tons
was with the private sector, of which about 1
million tons have crossed the country's borders.
The government believes that at least 1.7 million
tons of wheat is still available with the private
sector.
In an effort to release wheat
hoarded by the private sector, the ECC has asked
the State Bank of Pakistan to strictly monitor
credit given to the private sector for wheat
operations and to withhold refinancing after the
end of this month. Commodity traders meanwhile say
the wheat problem started emerging in May last
year before assuming crisis proportions by August.
Wheat inflation in Pakistan has been
aggravated by drought in Australia, one of the top
three exporters of the grain, driving up global
prices for the commodity by as much as 40% last
year as the world's stockpiles fell towards a
26-year low. Oil prices that have risen to $100 a
barrel, higher transportation costs and growing
security concerns in the region are also fueling
higher prices. In neighboring Afghanistan, the
price of flour shot up to 40 cents a kilogram in
December last year from 28 cents a kilogram in
January 2007.
Economics and the
election campaign Economic issues loom
large over the election campaign for next month's
parliamentary elections, as former prime minister
Shaukat Aziz is being blamed by his political
opponents for damaging food security and messing
up the national power generation capacity.
Though in power for under eight years of
power, Aziz as prime minister and finance minister
helped push through his economic policies to drive
up gross domestic product to $137 billion from $71
billion. At the same time, he failed to introduce
a significant power generation project to feed the
fast-growing economy.
Only in June last
year, a few months before leaving office, his
government announced construction of the 969 MW
Neelum-Jhelum hydroelectric project in the budget
for the fiscal year 2007-08, allocating 10 billion
rupees.
Last month, a contract for the
$1.5 billion power project in Kashmir was awarded
to a consortium comprising China Gezhouba Group
Company and China Machinery Export Corporation.
The project will be executed by 2015. Critics say
it should have been a higher priority for the
former government in view of the looming energy
crisis. The project was scheduled to start in July
2002 and be completed in June 2010, yet it
remained in the doldrums for six years.
Critics also attack the Aziz government
for failing to adopt a more serious approach to
developing the huge coal deposits at Thar, in
Sindh province.
China's Shenhua Group
started work on the Thar coalfield in 2002 and
spent over $100 million to conduct two viability
studies. After preparing a feasibility report, the
group was set to construct power plants before
quitting the project amid tariff rate disputes for
which critics hold the government responsible.
The former government is also accused of
mismanaging the wheat crisis by allowing the
export last year of 1.5 million tons of wheat,
resulting in a shortage when official estimates of
a 24 million ton bumper crop proved wrong. For the
past six months, failure to curb hoarding and
smuggling of wheat to Afghanistan has deepened the
crisis.
With high inflation, extreme
economic inequalities and growing trade and
current account deficits, the government formed
after the scheduled February 18 general election
will not be short of problems.
Syed
Fazl-e-Haider, sfazlehaider05@yahoo.com, is a
Quetta-based development analyst. He is the author
of six books, including The Economic Development
of Balochistan, published in May 2004.
(Copyright 2008 Asia Times Online Ltd. All
rights reserved. Please contact us about sales, syndication and republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
