Looming financial crisis

Well into its fourth year, the PML-N government couldn’t have played a worst innings. Mishandling of political dissent, underplaying the corruption of most political officeholders, creating regional and international isolation and now a looming economic crisis. What will be the legacy of the PML-N government?

The economic analysts wonder at the pace as Pakistan heads towards choppy waters. They note that the during the tenure of the current government the total cumulative overall gross external borrowing is a whopping $42.6 billion, including $6.2 billion from the Extended Fund Facility of the IMF. Repayment of this loan began in 2017-18.

However, the Fund continues to predict a favourable 5.6 per cent growth momentum for Pakistan. They view improved security conditions, energy supply, infrastructure, investment and agriculture as indicators of this growth promise. But is it really so?

More realistic economic gurus, both home and abroad, criticise the way our currency is overvalued by approximately 20 per cent via managed float regime. While 5.6 per cent growth is proving far inefficient to tackle the paybacks that we have to make on a regular basis, the dirty float makes our conditions even direr.

Another worrisome fact is that the lot of the external borrowing has been to keep the forex reserves at respectable levels. As the financial gap widens, it would make it difficult for us to negotiate any terms with the international donors.

And that’s exactly what just happened.

PML-N government is taking a lot of flak for the increase in the dollar rates in Pakistan. This has caused the importers major nightmares and local consumers to panic. However, it is only a part of IMF’s conditions to strengthen the country’s economic resilience. In turning to IMF, the State bank of Pakistan(SBP) had to allow adjustment of the exchange rate. It is to note that IMF is binding SBP for continued flexibility of the rupee. How this would impact the rupee and the import rates is anybody’s guess.

The opposition parties have been raising alarm bells on the inefficiency of the economic ministry. With Ishaq Dar, a proclaimed offender, at the helm of the national finances, the national economy might as well go to the dogs.

Economists at home still offer hope for the country. The measures to alleviate our ailing economy would have to be stringent. We would need massive scale restructuring of the public-sector enterprises. These state enterprises cause losses upwards of Rs 800 billion per year on average. We would also need to be moderate in expenditure and stop corruption.

As regional and international bailout buddies are getting mired in their own issues, it is increasingly difficult for us to receive support on the same scale as before. According to reports about 65% of CPEC’s early project loans (some $28 billion) are not on the same terms as those provided by the IMF. They have a roughly 7% interest rate attached. These loans are projected to cross $30 billion mark.

If PML-N government wants to be remembered at all by posterity it would have to undertake more than urban development projects that are sustainable. With low education quality and rates, and a lack of skill-based education, the future of the country can be grim. What Pakistan needs isn’t just another monetary shot in the arm but a sustainable economic policy reliant of an educated base, robust industry and trade.

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