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With the successful conclusion of the International Monitory Fund’s (IMF) three year loan programme, all eyes are now on the government’s performance on the economic front; post-programme period.
With less than two years left for the government to complete its term, it is to be seen if it will stick to its commitment of implementing the structural reforms to put the economy on a strong footing, which is vital to consolidate the gains made over the past three years.
Many observers are however sceptical that the government will press ahead with the much-needed, but politically difficult reforms, especially at a time when it is facing mounting pressure from the opposition, particularly Imran Khan, on the Panama Leaks issue.
Moreover, the country is most likely to go into an election mode next year, during which the government is unlikely to undertake any politically unpopular step.
At the conclusion of the EFF, the IMF issued a report reviewing the economic performance of Pakistani government during the three-year programme.
As expected, the Fund praised the government for achieving macroeconomic stability and said it generally met the benchmarks set for the three year programme.
“Since the start of the programme in September 2013, economic growth has gradually increased, inflation has declined and external buffers have been bolstered, supported by the authorities’ policies and the benefits of lower oil prices,” the Fund said in the 58-page report.
“Moreover, the fiscal deficit has been reduced while social safety nets have strengthened supporting the poor,” it added.
The programme has, undoubtedly, helped government avert a balance of payment crisis which was imminent in 2013 when it had just 800 million dollars in foreign exchange reserves.
However, many experts say the government is blowing its achievements out of proportion while the real challenges for the economic revival still exist.
They fear that the achievements made so far will be lost if government failed to do the needful.
For example, they said consistent decline in exports, foreign remittances as well as private investment means that the government will rely more on borrowing and it will also see a surge in external financing.
According to the latest figures released by the Pakistan Bureau of Statistics, the exports in the first quarter of the current fiscal year fell nine percent from the same period of last year.
On the other hand, the imports rose 10.7 percent in the same period, thus resulting in the trade deficit of over seven billion dollars in the first quarter. This deficit was 29.2 percent higher than the 1.6 billion dollars of the deficit registered during the same period of the last fiscal year.
Similarly, remittances fell by more than five percent to 4.7 billion dollars in the first quarter of the current fiscal year as compared to the correspondent period of the last year.
The foreign direct investment showed the same trend, meaning that the government has no other option but buy dollars from the market to maintain its reserves.
The IMF in its report noted that the foreign exchange reserves have tripled over the past three years and they are enough to meet the import bill for four months, but they still fall below the “comfortable level”.
Interestingly, just a day after the release of the IMF report, the Finance Minister Ishaq Dar congratulated Prime Minister Nawaz Sharif over the rise of forex reserves to 24.5 billion dollars after addition of one billion dollars raised from sukuk bonds.
Analysts say the government needs to take measures to boost exports and foreign investment as well as implement reforms in taxation and energy sectors in a bid to consolidate achievements made over the past three years. But they wonder whether it can focus its attention on addressing these challenges at a time when its political problems are also multiplying.
The government has been under tremendous pressure from the opposition to launch a proper investigation to find out is the prime minister has any links to the offshore companies of his children revealed in the Panama Leaks.
The Pakistan Tehreek-e-Insaf (PTI) chief Imran Khan has threatened to lockdown Islamabad in the first week of November to force the prime minister to resign if he does not agree to his demand for a proper probe.
“We will block all roads leading to the government offices in Islamabad to force the prime minister to allow a probe or else he must step down,” Khan told reporters at the weekend.
Observers say any showdown between the government and opposition can trigger political instability in the country which will adversely impact the country’s economy.
Despite IMF’s strong support for the government’s economic policies, and considerable improvement in the security situation of the country and the commercial hub – Karachi, in the wake of military operations, foreign investors are reluctant to put in their money, as evident from the official investment data for the past several months.
Political uncertainty as well as flare-up of tensions with India following the Uri attack can make investors more reluctant to bring in their money into Pakistan.
Moreover, observers believe that a visible unease in the relations between the civilian government and the military also do not augur well for the economic progress of the country.
The economic experts, therefore argue, that in view of the growing political challenges for the government how will government concentrate on its economic agenda.
Since the much-needed structural reforms involve some tough decisions like expanding of the tax net, they say the government is unlikely to opt for any politically unpopular decisions.
“After successful completion of the EFF-supported programme, the (Pakistani) authorities remain resolved to continue with prudent economic policies and structural reforms to preserve the hard-won economic gains and achieve their growth and job creation objectives,” Jafar Mojarrad, IMF Executive Director for Pakistan, Mohammad Dairi, Alternate Executive Director and Shahid Mahmood, senior advisor to the Executive Director said in a joint statement at the end of the IMF programme.
The coming weeks and months are very critical to see how far the government goes into turning these commitments into reality.
The writer is a senior journalist based in Islamabad
