The ongoing financial year 2007-08 might be remembered as the worst year for the economy of the country since 9/11 incidents. During the current fiscal most of the key economic indicators have exhibited the worst performance, leading to a substantial erosion in the national foreign exchange reserves, flight of capital to Dubai, depreciation of rupee against the US dollar (although dollar is losing ground against international currencies), record inflation, price-hike and four upward adjustments in the fuel oil prices since March 2008 while the fifth one is on the cards as the Finance Minister Ishaq Dar and Finance Secretary Ghafoor Mirza have already leaked out this unpleasant impending development to general public last week amid reports of relief package for the countrymen. It would not be wrong to say that the FY08 would be the year of a great loss to the national economy and the consumers as well because of various external and domestic factors. Because in this fiscal the trade deficit, current account deficit, fiscal imbalance, inflation and depreciation of rupee appear almost at par with such combined losses in previous two financial years. The foreign exchange reserves have dropped to 12.255 billion dollars by May 3, 2008, after hitting the highest mark of 16.46 billion dollars in October 2007. The current account deficit of the country had widened to 8.42 billion dollars from July-February period of this fiscal as against 5.40 billion dollars such deficit in the corresponding period of last financial year that showed the gravity of the deterioration in the foreign exchange earnings of the country. In view of the current pace of the current account deficit the CAD for the full financial year 2007-08 is being seen above 11.50 billion dollars as against 7 billion dollars in 2006-07 and 5 billion dollars in 2005-06. Similarly, the budgetary deficit is being projected above 600 billion rupees (500 billion rupees equal to 7.60 billion dollars) had already been reported by the finance ministry and by June 2008 it would further enlarge. In 2006-07 the fiscal imbalance stood at 377 billion rupees and 325 billion rupees in 2005-06. The trade deficit that had swelled to 14.48 billion dollars in nine months of the current financial year (10.04 billion dollars in the same period in 2006-07) is also being estimated in the range of 19-20 billion dollars in FY08 vis--vis 13.40 billion dollars in FY07 and 12.20 billion dollars in FY06. Another major shock and loss to the national economy is the abrupt depreciation of the rupee against the US dollar in last few weeks. Last week the dollar-rupee parity had crossed 69 rupees (from 62.70 rupees a couple of months ago) amid central bank's warning to the foreign currency dealers. Most of the countrymen are at loss to understand the reason of sharp appreciation in the value of the US currency in Pakistan, although the dollar is being beaten by all the international currencies. Even Indian rupee has appreciated against the US dollar during the past few months. The dollar-Indian rupee exchange rate had declined to below 41 to 42 rupees on May 8, 2008, as against 45 to 46 rupees a few months ago. The financial analysts believe that the dollar-Indian rupee exchange rate might further decline to 38 to 39 rupees as the US currency had been descending steadily against the international currencies (except the Pakistani currency). Capital market experts told Money Plus that the manipulators and a cartel of the currency dealers are actively engaged to mint money through artificial increase in the dollar-rupee exchange rates. After every six months the money market manipulators target one international currency and start raising its price by creating speculations in the currency markets. For example, during the last one year the foreign currency mafia had worked well on the Canadian dollar and Euro. The value of Canadian dollar had been jacked up to 68.50 rupees (on May 8, 2008) from 46 a year ago while the Euro-rupee parity too had been augmented to 107.40 rupees, from 80 rupees a year back. Taking advantage of dwindling foreign exchange reserves and reports of deterioration in the current account deficit, trade deficit the cartel of the foreign currencies in Pakistan had once again become very active to manipulate the dollar-rupee exchange rate this time in which they have succeeded as the exchange rate of the said currencies had been very close to 70 rupees mark that was also a new record in the history of the country. It may be recalled here that during the past seven and half financial years rule of Pervez Musharraf-led regime the country had sustained a colossal financial loss of more than 84 billion dollars in just two areas trade deficit and fiscal deficit. From 2000-01 to July-December FY08 indicate that this debt-trapped country has sustained a terrific fiscal deficit of Rs 1955 billion (33 billion US dollars if calculated at Rs 59 average dollar-rupee parity during this period while the trade deficit amounted to 51.41 billion dollars. Astonishing to note is that Pakistan had paid more than 26 billion dollars worth foreign loans and also got rescheduled around 10 billion dollars external liabilities, but despite this the foreign debt and liabilities had swollen close to 43 billion dollars by December 2007. The analysis also reflects that the annual quantum of the fiscal imbalance had ballooned from Rs 179 billion in 2000-01 (the first full financial year of Musharraf regime) to Rs 377 billion in 2006-07 and Rs 356 billion in just six months of the ongoing financial, July-December period. Trade deficit too had enlarged to 13.57 billion dollars in FY07, from a paltry deficit of 1.52 billion dollars in FY 2000-01. From July-February FY08 the trade deficit had widened to 12.433 billion dollars and it is expected to be around 18-19 billion dollars at the end of the ongoing financial year. The actual financial loss to the national economy appears much greater if one reckons the depreciation of rupee value against the US dollar, inflation and overall increase in the cost of production and doing business during the period under review. The new government would be facing an uphill task of tackling the burgeoning debt (external/internal) and the fast-expanding deficit (trade deficit, current account imbalance and fiscal deficit). Amazing to note is that in FY07 and FY08 the country had received a sizable amount of foreign exchange on account of remittances, foreign economic assistance and foreign direct investment. But the all-time high trade deficit had devoured the impact of the inflow of foreign exchange. Since 2005-06 the net inflow of the foreign exchange had been negative despite the launching of GDRs, global bonds and growing remittances and foreign investment mainly because of the trade deficit. Had the previous government of Shaukat Aziz taken the economic matters seriously, especially during its last two years, the economic erosion could have been reigned in very much. But Mr Aziz and his team had left the government with a big hole in the economy for the new coalition government. The economic erosion had triggered to such an extent that it had taken away all the economic gains, the country had achieved during the past six years, after 9/11 developments. Economic Outlook for 2008-09 In the coming financial year the coalition government is expected to curb the deterioration in the economy. The government would be able to launch the Global Depository Shares of mega listed companies and float international bonds to raise the foreign exchange that would minimize the impact of current account deficit and improve reserves in next financial year. In 2007-08 the previous government could neither float bonds nor the GDSs of the public companies because of political mess (that emerged in March 2007 with the removal of the Chief Justice of Pakistan), general elections, several suicide bomb blasts, and the formation of new coalition government in April 2008 (after 13 months of political chaos). However, 2008-09 the new government would strive hard to raise more than 5 billion dollars worth foreign exchange through bonds, GDSs and loans from the donor countries that would reverse the erosion in the economy and put the country against on the path towards economic stability. This, however, possible only in case the coalition government remains intact, otherwise, the economy would continue to suffer shocks and losses that might not be endured by the freak economy of the country. (For feedback: Jchoudhry63@yahoo.com)