Earlier this week, in the lead up to the IMF and World Bank annual meetings later this year, the World Bank released its South Asia Economic Focus 2017 report which warned Pakistan that macroeconomic risks have increased to the point where the country will need to reduce the budget deficit, increase exports and reduce imports to stave off a possible crisis. In response, the Ministry of Finance has rejected the claims of the report and said that the World Bank has grossly overestimated how much external financing Pakistan will need this year. Even if that is the case, Pakistan’s balance of payments deficits continue to increase and the government has been unable to bridge the budget deficit. That our foreign exchange reserves will only cover about three months of imports makes the situation dire and the World Bank has even suspended budgetary support and programme loans to Pakistan. Clearly, the government has to get its economic house in order rather than remain in denial about the problems the country faces.
We can start by working towards greater political stability. As the World Bank correctly noted, uncertainty in the country is affecting the economy. It is telling that Army Chief Qamar Javed Bajwa gave a speech in Karachi on Wednesday where he urged the government to broaden the tax base and show greater financial discipline. While Bajwa may have been correct in his economic assessment, it would be better for the state to speak with one voice and for the elected government to be that voice. Any signs of institutional differences will only lead to negative perceptions of the country abroad and that too will adversely affect the economy. The World Bank report had also pointed to the political uncertainty in the country, with the removal of Nawaz Sharif from power as one reason for its negative assessment. Pakistan’s unpredictable politics, where there is always speculation whirling around civilian governments and whether they will be able to see their terms, leads to economic policies that are ad hoc.
On the economic front, the government will have to start thinking seriously about measures like devaluing the rupee, which could increase Pakistan’s exports. In its annual report for the 2016-17 fiscal year, the State Bank has called for a move away from consumption-led imports to those that will spur investment. It, too, stresses the need for expanding our export base. Increases in the international price of oil and Pakistan’s need to import capital goods from China as part of the China-Pakistan Economic Corridor have not helped our balance of payments. But the anemic rise in Pakistan’s exports over the past few years shows that the World Bank may be correct in its diagnosis of our economy. The time for denial is now over. We need to show that we understand the gravity of the problem and are doing something about it.