Crime
bludgeons Karachi business By
Syed Fazl-e-Haider
KARACHI - Pakistan's
economy took a battering in the three months
through September, the start of the financial
year, as lawlessness in the country's economic
center of Karachi put off foreign investors and
buyers and a continuing energy crisis crippled
factories.
Net foreign direct investment
(FDI) in Pakistan plummeted 67% to US$87 million
in the July-September period compared with $263
million in the same period last year, according to
the country’s central bank. Overall FDI inflow
amounted to $287 million, while $200 million left
the country, indicating the shattered confidence
of foreign investors.
"Poor economic
management and persistent militancy has forced
investors away from a market, which has huge
potential and
prospects," Agence
France-Presse reported economist AB Shahid as
saying. "But the biggest of the negatives is the
deteriorating law and order situation that seems
unmanageable."
Wary of extortionist mafia
and poor law and order, the business community in
Karachi, the country's commercial capital, has
lost faith in the civil administration and has
demanded the army control security in the port
city.
A recent Daily Times editorial said,
"The Federation of Pakistan Chambers of Commerce
and Industry (FPCCI) has decided to go on strike
on November 8 to protest against what they call
the callous attitude of the government about the
law and order situation of Karachi. Knowing that
the economic prosperity of the country largely
depends on the situation in Karachi, the
provincial government has allowed the exploiters
and extortionists to have a field day. No effort
has been made to improve the law and order of
Karachi which is fast falling into the definition
of a failed city where vagabonds rule under the
protection of the government itself."
Extortion is "perhaps one of the main
money earning fortes of the criminal elements in
Karachi" it said.
Lately the business community is
being threatened from backing out from paying
bhatta [protection money] by sending them hand
grenades and other explosive material in order
to induce fear. Kidnapping of businessmen for
ransom has also increased manifold. Target
killing, street crimes, particularly mobile and
valuables snatching are rife in the city. To top
it all, the energy crisis crippling the country
has turned businesses into
shambles.
Export earnings grew a
meager 4% to US$2.21 billion worth of goods in the
first quarter, as travel advisories by Western
countries, including the United States, deter
visits to Pakistan by international buyers, while
even those who brave a visit are often put off
directly visiting exporting houses and
manufacturing units owing to the poor law and
order situation.
Pakistan's trade deficit
shrank by almost 10% to $4.7 billion in the first
quarter against $5.2 billion in the same period 12
months earlier as imports fell.
The
International Monetary Fund has reduced its
estimate for Pakistan's economic expansion to
3%-3.5% against the official target of 4.5%. The
economy grew 3.7% in the fiscal year to June 2012,
against the growth target of 4.2%.
The
country's deepening energy crisis is also taking a
heavy toll on industrial production and exports,
and is undercutting investor interest in the
textile sector, the largest foreign exchange
earner and directly provides jobs to 3.5 million
people.
Meanwhile, the government
increased borrowing from the banking system by 86%
in the three months through September compared
with a year earlier, taking loans worth 532
billion rupees (US$5.5 billion) during the
quarter, according to the central bank. Government
borrowing from banks doubled in the year to June
30 to 1,280 billion rupees from 645 billion rupees
the previous year.
The inflation rate as
gauged by the Consumer Price Index eased to 8.8%
year-on-year in September from 9.05% in August,
yet the IMF has warned that inflation may return
in double digits as the government prints money to
finance its budget deficit.
"Inflation has
fallen recently but is expected to be back in
double digits by the middle of next year if
corrective measures are not taken to reverse
monetary financing of the fiscal deficit," the
latest IMF mission report said, according to AFP.
"Underlying inflation remains high and represents
a regressive tax that disproportionately hurts the
poor."
Repayment of debt to the IMF is
hurting foreign exchange reserves, which declined
to $14.4 billion in the week ending October 5. The
IMF has projected that reserves held by the
central bank, currently at $9.9 billion, will fall
to $7.8 billion by the end of next June, raising
concern that the country may default on
international payments.
In 2008, the
country secured a $11.3 billion IMF loan stand-by
arrangement to avoid a balance of payment crisis.
It eventually borrowed $7.4 billion, with $3.4
billion undisbursed due to the government's
failure to implement economic reforms as demanded
by the IMF.
The country needs more than $1
billion by February 2013 to meet its repayment
schedule with the IMF, and failure to secure the
required amount could result in a resurgence of
its balance of payments crisis.
Other
creditors are conditioning their own assistance on
tight IMF scrutiny. In the wake of the technical
talks between Pakistan and the IMF earlier this
month, all multilateral and bilateral creditors,
including the United States, United Kingdom, World
Bank and the Asian Development Bank, suggested
that the government seek the IMF's assistance
before the occurrence of a crisis.
Syed Fazl-e-Haider
(http://www.syedfazlehaider.com) is a
development analyst in Pakistan. He is the author
of many books, including The Economic
Development of Balochistan (2004). He can be
contacted at sfazlehaider05@yahoo.com.
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