KARACHI: The ongoing economic crisis across the world after downgrade of the United States credit rating would have a positive impact on Pakistan’s economy as analysts said that the current account balance would stay in surplus and the electricity subsidy will automatically be contained.
The United States credit rating downgrade after enhancement of debt ceiling rattled the stock markets around the globe and majority of the equity markets have touched their lower locks. While major commodities, except gold, have also witnessed sharp decline in their prices after 2008.
“With the decline in oil prices globally, Pakistan’s current account balance is likely to stay in surplus and the electricity subsidy will automatically be contained,” according to a JS research report on Tuesday.
The report said that the growth is expected to rebound due to the bumper agriculture crops and inflation would tame further, whereas equity market will remain resilient compared to its regional peers due to lower foreign exposure.
“However, political instability and deteriorating law and order situation are the key risks to the economy,” it added.
Analysts said that the present global crisis is different to 2008. The crisis of 2007/08 was driven by excessive overheating of the global economy and resultantly commodity and real estate markets touched their peak levels.
In that crisis, Pakistan suffered as a result of higher global commodity prices and the government flawed domestic prices of providing huge subsidy.
“As a result, the twin deficits hit 16.3 percent of the GDP,” the JS report revealed, adding that this difficult scenario led to the International Monetary Fund (IMF) programme in order to bailout the economy from the brink of collapse.
However, the report said that in 2011/12 crisis Pakistan’s macros will be resilient and will benefit from the decline in the global commodity prices.
“Unlike 2008, Pakistan’s real interest rates are positive, real effective exchange rate is not overvalued and subsidies are largely contained,” it added.
About the United States austerity plan and its impact on Pakistan, experts believed that the United States is unlikely to reduce its spending towards the war on terror.
The American economy is going through its worst period in history, where Obama’s administration is left with very little fiscal space to finance its ballooning fiscal deficit that is around nine percent of the GDP.
The stimulus package of post-Lehman crisis has left the Federal Reserve Bank of America literally with no option either. To smooth the functions of the US Treasury, the lawmakers have agreed to provide additional $2.4 trillion to the debt ceiling, subject to deficit saving of approximately $1 trillion over the next decade.
This year the Americans are unlikely to reduce their spending as the austerity measures decided will be implemented from 2013 onwards, experts said.
The JS report said that the United States will continue to pay for counterinsurgency programme in Afghanistan even if it plans to pullout from Afghanistan by 2014.
On Pakistan’s front, the United States will definitely play the role of the devil’s advocate and delay the due payments or reduce the grant size, according to the report.
Overall, the presence of the United States in Afghanistan will keep the dollar flows continued into Pakistan directly or indirectly, the report said, adding that the United States rationalisation of budgets will have a bare minimum impact on Afghanistan and Pakistan.
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