It has become a truth universally acknowledged that economic projections presented by the government need to be taken with a large heaping of salt. Every year, optimistic predictions are made about the rate of economic growth, revenue collection and deficit reduction only to be quietly revised downward. That process seems to be repeating itself again. Earlier this week, the IMF slashed its projection of GDP growth down to 4.7 per cent as compared to the government target of 6.2 per cent. Now the World Bank has followed suit and lowered its own projection to 5 per cent. The reason for these pessimistic estimates is the worry that our dwindling foreign reserves will be insufficient to cover our foreign debt. During the five-year reign of the PML-N, external debt and liabilities increased 76 per cent to 10.6 trillion rupees, which equals more than 30 per cent of GDP. Our debt is expected to continue increasing as we keep seeking outside financing for our development needs. The recent devaluation of our currency and hike in interest rates is meant to try and alleviate the problem but it is looking likely that we will soon need to approach the IMF for another bailout.
The new interim setup had announced that interim Finance Minister Shamshad Akhtar would hold talks with the IMF on the economic health of the country later this month. Now we hear that that the interim cabinet division has issued directions to the effect that the caretaker government cannot make decisions or be a part of negotiations anywhere that might affect the workings of the future government. It stands to reason that the interim government not commit to a new bailout package. Such major decisions are better left to an elected government. The recent economic news also reinforces the doubts many have voiced about putting all our eggs in the CPEC basket, where most projects were financed through external loans, was always going to put pressure on us to quickly generate revenue from these projects. That has not happened for the simple reason that long-term investments in infrastructure take a similarly long time to reap dividends. The ex-government’s reliance on the IMF has also proven unwise. It decided to raise revenue to repay loans by increasing indirect taxes which hit the poor the hardest rather than clamping down on tax evasion by the rich. This has left us in a position where we will bring out the begging bowl once again and be susceptible to further meddling in our economy by international financial institutions.