Economic Stability Taking Hold

The IMF’s Resident Representative for Pakistan, Paul Ross, told reporters this week that economic stability is taking hold in Pakistan. The IMF’s assessment is positive news, especially following recent forecasts of larger than expected economic growth for the year.

According to a report in today’s Dawn, Pakistan’s economy, while still struggling, appears to be improving quickly.

“In terms of the economy, stabilisation seems to be taking hold, progress has been made,” Paul Ross of the International Monetary Fund said in an interview with Reuters.

Pakistan turned to the IMF for an emergency package of loans in November 2008, when inflation was 25 per cent, the Central bank reserves were equivalent to just one month of imports and the current account deficit had widened to 8.5 per cent of gross domestic product (GDP) for fiscal year 2007-08.

Now, inflation has dropped to 13 per cent, reserves are four months of imports and the current account deficit is set to be around two to three per cent of GDP this fiscal year ending June 30.

Among the encouraging data points – in areas where there has been some loss, specifically Foreign Direct Investment, the economic impact has been softened by making up the account in other areas.

Indeed, foreign direct investment (FDI) has almost halved over the past year, standing at just $1.77 billion in the first 10 months of fiscal year 2009-10. In Vietnam, by comparison, the government expects FDI of $10-11 billion in 2010.

However, there has been an upturn in foreign portfolio investment as the economy has improved, with net inflows into the stock market of $508.7 million in the first 10 months compared with an outflow of $392 million in the year-earlier period.

One key item that holds back FDI and further economic growth is investor fears about Pakistan’s political stability. As attacks on the democratically elected government intensify, foreign investors are less inclined to build factories and infrastructure in Pakistan because they cannot be sure that their investments will be secure. As the present government continues to serve out its full term, however, investors may turn around and see that the state is not in danger of being toppled, and Pakistan represents a safe place to invest in new jobs and industries.

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