Dhaka, Bangladesh
Pakistan’s economy beset by challenges

Pakistan’s economy beset by challenges

Writes RK Kaushik

The lack of administrative experience of Imran Khan and his not-so-capable team of Ministers has led to vacuous frugality in decision making. These include the option to approach IMF and to take aid from friendly countries; who should be CM of Punjab (Pakistan), whether Usman Buzdar should continue using his indolent and very slow pace; what role to play in Afghanistan; how to smoothen relations which India and a stand on the US Iran conflict are some of the examples of this confusion affecting the Imran government. It is a fact that political stability is a prerequisite of economic progress and development. In this case it is not very visible because the whole world knows that the Imran government came to power not only because of its own popularity but through the magnanimity of the Army and ISI – the Establishment in Pakistan’s context. Imran was chosen because he was popular and had charisma; also his financial hygiene was better than that of Nawaz Sharif and Asif Zardari, both of whom faced serious corruption and money laundering charges. The Establishment managed the polling and counting in many (reports say 39) National Assembly seats. It further ensured that support of smaller groups and parties from Baluchistan came to Imran. All that led to the formation of his government, the first by a cricket star anywhere in the world. The start was not so good as people had vaulting expectations which slowly started getting doomed to smouldering desires. Defence, Internal Security, Foreign and Nuclear Policies and allied departments are controlled by the Establishment. This is a “No Go” area for Imran and his government. This led to, Pakistan getting stalked by bad economic news: a tough IMF package, revenue shortfalls, sharp rupee depreciation, stagnant exports, reduced foreign investment, and, to top it all, no oil or gas at Kekra Area. The package which is now being concluded with the IMF will no doubt contain some tough conditions. However, two major concerns have already been largely addressed. First, the rupee has depreciated close to what is considered its present ‘market’ value (Rs 152 to a dollar). Second, the US objections to CPEC financing have been mitigated by Pakistan’s facilitation of the US-Taliban talks at Doha. The $6 billion IMF package, though modest, will also lead to another $3 billion from World Bank and Asian Development Bank which will enable Pakistan to raise concessional financing from the development banks and borrow on the bond markets at reasonable rates. The smaller IMF package may also ease Pakistan’s expected effort to wean itself away from IMF supervision as soon as possible. The IMF’s targets for reduction of the fiscal and current account deficits will impose constraints on economic growth and socio-economic programmes risking public ire and further fire from the opposition and a critical media. Several of the structural measures prescribed in the IMF programme, such as bringing the fiscal and current accounts into balance, are actually essential for the long-term health of the Pakistani economy and should be implemented regardless of the IMF. Pakistan’s economy has underperformed mainly because it has been cash-starved and constrained by policy and execution inefficiencies. Its high growth potential resides in the pent-up demand for consumer and durable goods and health, education and other services; in the unexploited domestic and export potential in agriculture, mining, textiles, industrial goods and other sectors; in the country’s huge infrastructure requirements and in its undervalued assets and companies. The $6-billion bailout loan from the International Monetary Fund (IMF) is to be disbursed over 39 months. So far as global anti-terror watch dog Financial Action Task Force (FATF) is concerned Pakistan requires about 15-16 votes to move out of the grey list and a minimum of three votes to avoid falling into the blacklist. The FATF currently has 36 members with voting powers and two regional organisations – EU and GCC. Islamabad has little support and finds itself isolated in the aftermath of the 14th February Pulwama terror attack, as per reports. It is pertinent to mention that the China-Pakistan Economic Corridor (CPEC) has caused some positive changes to Pakistan’s socio-economic development over the past five years. CPEC, a major pilot project of the China-proposed Silk Road Economic Belt and the 21st Century Maritime Silk Road, connects Gwadar port in south-western Pakistan with Kashgar in west China’s Xinjiang Uyghur Autonomous Region. Pakistan’s rupee weakened to a record in an apparent devaluation, four days after it secured a bailout from the International Monetary Fund that investors speculate includes tough conditions to reform the economy. The rupee dropped almost 4 per cent, to the most in more than five months, (to Rs 152 to a dollar at present), according to central bank data. The currency has plunged more than 20 per cent in the past year, making it the worst performer in a basket of 13 currencies in Asia compiled by Bloomberg. The rupee level reflects demand and supply conditions in the foreign exchange market. In absolute terms, the country’s nine-month total fiscal deficit amounted to Rs 1.922 trillion — the highest 3rd quarter deficit in history — against Rs 1.48 tr in the same period last year, up by a massive 30 per cent. This was despite a steep fall of 34 per cent in development spending. It is clear that the overall exports for 2018-19 will remain static at around $ 24 billion or fall to $ 21 billion in the next fiscal year and Pakistan will have to generate $10.5 billion to repay the loans in the current financial year, i.e. from 1 July 2019 to 30 June 2020. How will it generate $34 billion in one financial year needs to be seen. It is not well known (as the figures are fudged) that Defence, Intelligence and Para Military Budget itself takes almost 48 per cent of Pakistan’s overall Budget of US $46 Billion. Pakistan has an External Debt of $ 105 Billion and Internal Debt of 4 Lakh 10 Thousand crores (Pakistani Rupees). This is one of the highest in the world. It surpasses even Israel which keeps a humungous military war machine ready to strike anywhere. The future of the Imran Government depends upon his wise and sagacious tackling of the economic situation along with inflation which is getting worse and more precarious with every passing day.

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