By Syed Fazl-e-Haider

KARACHI, Pakistan – Business in Karachi, Pakistan’s commercial capital, ground to a halt at the weekend after at least 33 people were killed and over 100 injured in two explosions on Friday. The city of 18 million people houses the main stock exchange, central bank and offices of multinational corporations.

Businessmen warn that Karachi, which contributes about 70% of the country’s tax revenue, is fast becoming a “no-business and no-trade city”, as there is no protection to life and property.

Suicide bombings have surged across Pakistan since the army in October launched an offensive against Taliban insurgents in the northwestern tribal areas. Their impact and the cost of security is drawing funds away from other areas of spending. Higher than expected expenditure on security, power subsidies and cost overruns have already forced the government to slash by 30% the overall size of its Public Sector Development Program (PSDP) for the fiscal year that runs through to June 30.

The country is dependent on external flows to keep its fiscal deficit within a target of 4.9% for the current fiscal year, yet trade activity has shrunk and dragged small businessmen into a severefinancial turmoil and critics say the government has been least concerned with the problems of traders and common businessmen in the financial capital.

Karachi on Saturday mourned the killings in the two blasts, with a transport strike bringing the supply of essential commodities and trade to a halt.

“Only 25% of laborers could reach industrial units, as there was thin transport on the city roads on Saturday,” a Business Recorder report cited Saleem Parekh, the chairman of the Karachi-based Sindh Industrial and Trading Estates Association of Industry, as saying. “Production plummeted between 15% and 20%.”

Trading activity plunged by more than 50% on Saturday at the country’s largest fruit and vegetable market on the Super Highway in Karachi, as buyers stayed away due to security fears, according to the Daily Times. Vegetable and fruit traders, wholesalers, farmers and growers have suffered financial losses due to the absence of transport. Businesses will continue to suffer losses as goods carriers are dissuaded from entering the violence-prone city through fear of a backlash from emotionally charged mourners.

The city is still reeling from the December 28 suicide attack on a procession of Shi’ite Muslims in Karachi, when at least 43 people were killed and businesses suffered losses worth millions of dollars. Local traders demanded then that government improvesecurity, but the latest explosions have sparked renewed anger at the central authorities’ apparent lack of action.

“I think the government is serving its own interest by not taking action against the real culprits who took part in the Boulton Market arson attacks [on December 28],” The News quoted Atiq Mir, chairman of the Alliance of Markets Association, as saying. “I believe these responsible people may again damage shops taking advantage of any opportunity.”

During the first week of February, at least 42 people lost their lives in targeted killings in Karachi. Under anti-terrorism legislation, Rangers have been given special powers after police failed to impose law and order in the city. Local analysts see the problems in Karachi as a new development on the political front, straining ties between the ruling Pakistan People’s Party (PPP) and its key partner, the Muttahida Qaumi Movement (MQM), in the coalition government in southern Sindh province. President Asif Ali Zardari and Prime Minister Yousaf Raza Gilani are trying to mend relations with the MQM, as their PPP party is already facing criticism from the opposition and from the general population as they struggle against soaring inflation and energy shortages.

Zardari is also facing calls to step down after the Supreme Court struck down an amnesty, the National Reconciliation Ordinance (NRO), promulgated by former president Pervez Musharraf that had protected the increasingly unpopular leader and several of his political allies from corruption charges.

The decision to slash the government’s development program for the current fiscal year to 300 billion rupees (US$3.5 billion) from 421 billion rupees compares with an initial proposed outlay in the 2009-10 budget of 646 billion rupees. This mirrors a pattern seen in the 2008-9 fiscal year, when the development program was planned at 550 billion rupees, only to be cut to 419 billion rupees then to 269 billion rupees.

The government is facing an ever-tightening squeeze as securitycosts rise and investment declines. It is also receiving less than expected cash from funds pledged last year at the Friends of Democratic Pakistan summit in Tokyo. Delays in projected foreign inflows and non-tax revenues from foreign reimbursements could make it more difficult to stay within the fiscal deficit target of 4.9% of gross domestic product (GDP), or 740 billion rupees, according to the central bank. The deficit may widen to 5.3% of GDP thisfiscal year, according to Finance Minister Shaukat Tarin. The fiscal deficit for the first quarter (July-September) was 1.5% of GDP, 0.2% worse than the target.

Only Saudi Arabia has extended $300 million to Pakistan out of the total pledged of $700 million in Tokyo by donors, according to a report in the Business Reporter. Nor has the United States released funds under the Coalition Support Fund for several months on the pretext that the government of Pakistan is creating problems in issuing visas to US nationals.

If the government aims to meet the fiscal deficit target it will have to increase its borrowings from the banking system and non-bank sources.

The World Bank has committed up to $1.3 billion for Pakistan in the current fiscal year but it is concerned at the country’s capacity to generate revenue, as tax as a percentage of GDP is about 9%, one of the world’s lowest rates.

“Increased insecurity has not affected bank projects,” Reuters quoted Yusupha Crookes, World Bank country director for Pakistan, as saying. “If everything gets delivered, which we very much expect will be done, we will make commitments of around $1.2 billion to $1.3 billion for the current fiscal year,”

The government’s other key source for cash is the International Monetary Fund, to which Pakistan, facing a balance of payments crisis, turned to for a $7.6 billion loan package that was agreed in November 2008. The loan was increased to $11.3 billion last July.

Syed Fazl-e-Haider (www.syedfazlehaider.com) is a development analyst in Pakistan. He is the author of many books, includingThe Economic Development of Balochistan (2004). He can be contacted at sfazlehaider05@yahoo.com.