Gulf News 20/05/2007
Pakistan’s free trade ambitions threatened
By Farhan Bokhari, Special to Gulf News
Islamabad: Last week’s revelation by Pakistan’s commerce minister of the imminence of a new free trade deal with Malaysia and discussions ongoing for such a deal with Singapore must help to perk up the country’s investment climate.
Such arrangements, according to a number of seasoned economists, must help lift prosperity levels within the signatory countries which stand to gain from an effective end to various taxes slapped on imports.
But a combination of challenges faced by Pakistan’s industrial sector and the country’s overall environment must instill caution surrounding bold visions of success and hope.
For many of Pakistan’s industrialists, the country’s environment just doesn’t help them to produce goods which reach the markets more competitively than those of many other countries.
In the past five years, Pakistan has gone from an environment where a fall in interest rates charged by banks has become the all too powerful obstacle of a significant rise in rates.
This has in turn made it more expensive for Pakistani businesses to borrow capital, by comparison to a host of other exporting countries. The sharp rise in global oil prices has indeed come as a double edged sword for the country.
On the one hand, rising oil prices make it all the more likely that investors from countries in Pakistan’s nearby Middle East region should head to Pakistan in search of opportunities.
However, what has also happened to the detriment of the Pakistani economy is indeed the effect of the global rise of oil prices which has added to Pakistan’s import bill and its rising cost of energy.
But perhaps one of the key impediments to Pakistan’s ability to become a robust performer in free trade tie-ups with a growing number of countries is indeed the country’s worsening internal political environment. As someone said once, investors are like pigeons. They come one by one but all fly together when the going gets rough.
Pakistan today faces the danger of the pigeons flying away, more than at any other moment in recent years. The government has indeed overseen a significant improvement in economic growth rates and a fast-paced build-up in foreign currency reserves.
However, the decision by General Pervez Musharraf, Pakistan’s military ruler, to suspend the country’s chief justice in March this year, has been followed by a fast build-up of protests and violence. Last week’s events in Karachi when at least 40 people were killed in protests between pro- and anti-government activists on the day that the chief justice arrived in the city, demonstrated not only mounting political uncertainty but also a blow for the economy.
For the moment, Pakistan is passing through a difficult phase in its history. The country’s president who is also in charge of the military appears eager not to forego his charge of either of his two positions.
Main trend setter
This essentially means that Pakistan’s political uncertainty is bound to rise as the battle lines appear to have been drawn up between the country’s ruler and the opposition parties. With the assurance of growing uncertainty on the horizon, Pakistan’s prospects are unlikely to improve.
Some signs of mounting uncertainty with economic consequences has appeared recently, given some losses on the Karachi stock exchange which is Pakistan’s main trend setter for its equity investors.
To return to the debate on a growing number of free trade agreements, it’s obvious that without political stability, economic improvement is unlikely to follow. For a host of businesses and industrialists, expansion of present day activities may become a difficult exercise in future.
General Musharraf’s best hope for resurrecting Pakistan from growing uncertainty lies in reviewing his political direction. He has not only taken controversial measures such as the suspension of the chief justice of the supreme court.
The writer is a journalist based in Pakistan.