WASHINGTON, May 24: Pakistan appears to have failed to benefit from economic benefits offered after the September 11, 2001 terrorist attacks which could have been used to build a solid economic base for the country, experts say.

Pakistan’s strategic location often brings economic assistance for the country but so far no government seems to have benefited from these opportunities, speakers told a seminar in Washington.

One speaker, Manuela Ferro of the World Bank, described this as the ‘boom-to-bust’ pattern and wondered why “there’s no corrective mechanism to prevent the re-emergences” of the imbalances that often push the country from ‘boom to bust.’

The main speaker, Mushtaq Khan, set the pattern for the discussion by examining the factors that led to a boom in the Pakistani economy after 9/11 and showed how Pakistan’s economic planners once again failed to sustain this boom.

Mr Khan, Woodrow Wilson Centre’s Pakistan scholar for 2006 and Citibank’s country strategist, urged Pakistan’s economic planners to “start easing off, control things a bit more and let’s just be a little cautious.”

Shahid Javed Burki, a former finance minister and senior World Bank official, said economic policies of the present government made him ‘very nervous.’

Andy Baukol of the US Department of Treasury expressed concern about the quality of spending in the Pakistani budget, “too much going into spending and too little on education.”

Mr Khan began his presentation with some historical details about Pakistan’s ‘checkered relations’ with the IMF and how after the coup the Musharraf government dealt successfully with ‘a very strict’ IMF programme.

“We delivered in a manner that perhaps we have never done before, very strong conditions but very useful,” he said.

Then 9/11 happened, Pakistan received certain benefits in terms of debt scheduling, debt write-off, also some logistical support from the US government.

This, according to Mr Khan, led to ‘a very sharp’ change in monetary policies, which started in November 2002 and continues. “The pace of credit expansion has been very rapid since then and it has not eased,” he said. Explaining the implications of such a policy, he said: “Once you have a lot of spending power in the economy, it leads to growth but there are also implications in terms of external deficit: the more you spend, the more you import — in Pakistan’s case most of the increase in the external deficit is domestically driven.”

The country, he said, was now dealing with another imbalance which is the credit or the liquidity money that has been injected into the system and is seen in places like real estate and stock market. “If you want to take corrective actions now, it will be expensive in terms of financial and economic costs,” he added.

Mr Khan warned that further increase in oil prices could have a very negative impact on the Pakistani economy because adequate arrangements have not been made to protect the economy against external shocks.

He felt that if something happened to increase the price of oil, Pakistan government will not be able to shelter retail consumers. “If that happens then there are issues in terms of consumer demand and purchasing power,” he warned.

Commenting on Mr Khan’s presentation, Mr Baukol of the US Treasury Department agreed that 9/11 brought cash inflow from remittances by affecting the Hundi system and this inflow allowed Pakistan to avoid some of the difficult choices they were facing.

After Pakistan joined the US-led war against terrorism, international monetary institutions like the IMF also softened their attitudes, “requiring less of Pakistan than in the past.”

He, however, pointed out that there were some weaknesses in the Pakistani economic system that did not get resolved. “One of the key issues is the level of credit growth — which is higher than normal GDP growth — since credit growth is very, very rapid, so is the risk, especially if there is an external factor.”

Mr Burki said that he felt ‘a fair amount of nervousness’ about the quality of assets banks in Pakistan have acquired, such as automobiles, houses and credit cards. “The central bank needs to watch the situation very carefully,” he said.

Mr Burki said it was difficult to predict which way the country was heading. “The Pakistani economy takes off when foreign assistance is available but the money is always used for consumption and not for creating assets — this government could have done better but did not — there’s a reasonable probability that we are heading down again.”

He said he was also nervous about the use of privatisation to fill the external gap. “If investment came to the country by selling government assets then this should produce exports otherwise this will be a contingent liability for the government,” he warned. “There’s enough to worry about.”