Marriot blast rips hole in Pakistan economy

Posted in Pakistan | 23-Sep-08 | Author: Syed Fazl-e-Haider| Source: Asia Times

A view of destruction caused by suicide bombing at Marriott hotel last week in Islamabad, Pakistan on Tuesday, Sept 23, 2008.

QUETTA, Pakistan - Business, commerce and markets in Pakistan are reeling from the shockwaves of Saturday’s suicide blast outside the five-star Marriott Hotel in a high-security zone of Islamabad. The explosion killed at least 53 people, wounded more than 250, and caused extensive damage to public and private property.

The Marriott was an essential stopover for foreign business delegations and its destruction in Saturday's blast has further aggravated security concerns among the investors and businessmen from North America and Europe, Pakistan's major trading partners.

Most immediately, the local hotel industry is likely to be adversely affected by the blast and analysts fear a large decline in room occupancy, with foreigners checking out amid more strict travel advisories by their overseas missions, which had already advised visitors to restrict their movements due to deteriorating law and order.

Its location near President House, the parliament building, Prime Minister House, and right opposite Sindh House and the judicial colony, made the Marriott a popular and extremely convenient base for foreigners visiting Islamabad.

Czech Ambassador Ivo Zdarek, two Americans and a Vietnamese woman were among the 53 people killed in the suicide bomb attack, for which a little known Pakistani militant group, Fidayeen-e-Islam, has claimed responsiblity, saying it was aimed at kicking "American crusaders" out of the country, a BBC report said. Sadruddin Hashwani, the owner of the hotel and chairman of Hashoo group, pledged in an interview with a local private TV channel, to rebuild and reopen the hotel by December 31.

Pakistan's economic outlook was already utterly bleak before the blast, with inflation at more than 25%, a widening current account deficit, declining foreign exchange reserves and a weakening rupee. In the blast's aftermath, the local currency slid to a near 10-year low of 78.55 rupees to the US dollar in early Monday before closing at 78.30 rupees against the US dollar, according to the local currency dealers. Local analysts fear that the rupee may plunge to a record low of 100 to the dollar if immediate measures are not taken to stabilize the local currency.

The worsening Pakistan-Afghanistan border situation has already caused an outflow of foreign portfolio investment and foreign investors' confidence will further weaken in the aftermath of Islamabad blast, according to the analysts.

The trading in the country's stock markets is dominated by fears of the further deterioration in Pakistan-US ties on the issue of cross-border incursions by the United States. The benchmark Karachi Stock Exchange (KSE) 100-share index has declined about a third this year amid perpetual political instability and worsening civil unrest.

Foreign investors who want to disinvest are pressurizing the KSE regulators to remove the price floor placed on the index last month to halt heavy share losses reflecting the political uncertainty and deteriorating economic fundamentals. The curbs will be reviewed on Thursday. Portfolio investment presented a negative trend of $110.88 million during July and August, compared with a negative position of $146.58 million in same period a year earlier.

Yet even as portfolio investors look for an exit, overseas direct investment is showing some strength. Net foreign investment in Pakistan rose 106% during the first two months of fiscal year 2009, which started on July 1, jumping to $643.18 million from $312.29 million in the same period a year earlier, according to the central bank. Privatization proceeds and foreign private investment rose 72% to $644.78 million during July and August from $375.29 million in the year-ago period.

Foreign reserves have fallen from a record high of $16.5 billion last October to $5.52 billion. This limits the scope for currency intervention by country's central bank.

The country's current account deficit widened to $2.57 billion in the first two months of the present fiscal year, equivalent to about 1.6% of gross domestic product (GDP), and looks set to easily smash through the full-year target of 6% of GDP. In the last financial year, ending June 30, the deficit was $14.02 billion.

In July alone, the deficit widened 24% to $1.01 billion compared with 12 months earlier.

The trade deficit jumped 47.67% to $3.522 billion in the July, August period compared with a year earlier, according to Federal Bureau of Statistics (FBS), as rising exports failed to keep pace with a surging imports bill. Imports increased 31.77% in July-August from a year earlier to $7.01 billion as export roses at a mere 8.85% pace to $3.49 billion.

Meanwhile, Pakistan's consumer price inflation picked up pace in August to 25.33% from 12 months earlier, up from a 24.33% gain in July. That is increasing the risk of a further downgrade in the country's credit rating, already precarious given the host of other problems facing the authorities. Pakistan's credit outlook was cut on Tuesday to "negative' by Moody's Investors Service, which said the country may face difficulties repaying foreign debt, according to a Bloomberg News report. Moody's rating of B2 on the government's bonds is below that for Turkmenistan and Cambodia, the report said.

Saturday's attack came a few hours after President Asif Ali Zardari made his first address to the joint session of parliament. The attack appears to have been a message to Islamabad to discontinue its policy of supporting the United States in its "war on terror" in the region, which has involved a a series of incursions from Afghanistan into Pakistan, moves the government has objected to.

While condemning Saturday's deadly blast, US President George W Bush has urged Pakistan to intensify its fight against terrorists. He linked the Marriott blast to a series of recent bombings across Pakistan and pledged to fully support the Islamabad's elected government as it faces its enormous economic challenges.

Pakistan has paid dearly for the US-led war in terms of heavy human and economic costs. Despite its frontline role and services in the cause of the war, Pakistan has been the target of severe criticism by some US politicians, military officials with the North Atlantic Treaty Organization and the Western media, attacking Pakistan and its intelligence services for doing not what they should have done after receiving billions of dollars as military assistance from the US.

Local analysts argue that in this Washington and Kabul have been shifting responsibility for their failures against al-Qaeda and Taliban in Afghanistan to Pakistan. Meanwhile, analysts say, the Americans and NATO forces have done nothing to help track down the terrorists responsible for hundreds of recent suicide bombings in Pakistan.

Syed Fazl-e-Haider,, is a Quetta-based development analyst in Pakistan. He is the author of six books, including The Economic Development of Balochistan, published in May 2004.