Money Matters

Hostile questions

By Ihtasham Ul Haque
Mon, 10, 16


Pakistan’s  highly vulnerable external sector is causing huge problems to the country’s economy, forcing the International Monitory Fund (IMF) and  the Asian Development Bank (ADB), for the first time, to concede that major effort is required to address this challenge.

During a high profile visit to Islamabad last week, IMF’s Managing Director Christine Lagarde and ADB President Takehiko Nakao pointed out that corruption, whether perceived or real, needed to be dealt on priority to ensure transparency in major financial matters.

Interestingly, while the ADB regretted supporting the $14 billion 4,500MW Diamer-Bhasha dam project, the IMF chief assured of extending another bailout package if required after 2018 election to the new government.

“So be it,” was the crisp response by the IMF Chief at the press interaction session at the Emerging Markets function, when this scribe commented that most of the country’s independent economists believed the new government would have to go back to the IMF for emergency lending to repay loans by 2018.

Both high ups of the IMF and the ADB faced a vitriolic barrage of hostile questions during separate news conferences about their assessment of the Pakistani economy. Unlike the previous clean bill of health they gave to the economy of Pakistan, this time around they said that the gains of assistance could go to waste if meaningful structural and policy reforms were not implemented immediately.

In so many words, Lagarde and Nakao also said that exports needed to be enhanced and external debt reduced along with increasing home remittances which were major sources of foreign earnings.

They also went on to say that significant structural reforms in the revenue and power sectors were also required to remove hurdles in the smooth takeoff of the economy.

It is generally admitted in the official quarters that collapsing exports were depriving the country of precious foreign exchange reserves and that the government would have to think out of the box to untangle these issues. Exports need to be galvanised by helping exporters salvage refunds amounting to Rs200 billion approximately.

Home remittances remain the most important factor in increasing foreign exchange reserves; an issue which has the potential to seriously hurt the economy in case the government does not take timely measures.

According to former advisor to the Ministry of Finance, Sakib Sherani, exports that contribute seven percent to the GDP, were highly vulnerable and could cause more problems if not boosted systematically. “For me losing the export demand in the international market is very disturbing. This decline of our market share is being filled by others including India, Bangladesh, Thailand, and Sri Lanka,” he said.

“Once this export market share is lost, it becomes very difficult to reclaim it,” Sherani said, advising the government to offer the much needed bailout package to the exporters before it was too late. Sherani is a prominent economist who now heads a think tank in the capital.

Word has it that the government was finalising a relief package amounting to $175 million for the export industry, aimed at increasing the quantum of the fast dwindling exports.

Talking of home remittances, he mentioned that 60-65 percent of remittances came from Gulf Cooperation Countries (GCC) and with the dip in oil prices, coupled with the crisis in Yemen; a sharp reduction for human resource demand from Pakistan was visible.

Pakistan Muslim League-Nawaz (PML-N) Senator Anwar Baig, who has over 40 years’ experience of manpower export has written a letter to the prime minister inviting his attention towards the issue. The prime minister according to him has promised to take all necessary measures to increase manpower export, particularly to GCC countries.

Senator Baig has urged the government to reactivate the ministry of Human Resource Development (HRD), previously known as Ministry of Labour, Manpower and Overseas Pakistanis. “There is a need to craft a wholesome strategy, backed by the foreign office to boost manpower exports, and it cannot be done without major effort from the Ministry of HRD; failing which heads must roll,” he said. Pakistan could not afford complacency at this critical juncture and there was a dire need to seek fresh manpower orders from GCC countries, especially Saudi Arabia, UAE, and Qatar, he added.

There are questions about the fate of the Pakistan Remittance Initiative (PRI) kick-started in 2009 that helped increase remittances by $6 billion, eventually rising to $19 billion till last year. The central bank hopes to receive $20 billion from foreign workers, despite a dramatic plunge in oil prices.

Former finance minister Shaukat Tarin set up the PRI to monitor and handle issues relating to remittances. A system of financial incentives was also introduced for banks and other concerned agencies for encouraging them to augment the volume of home remittances. During that period of PPP, hawala / hundi was discouraged and neutralised to some extent by ensuring speedy transfer of funds to the families of the overseas workers.

Other regional and South Asian countries, including India, Bangladesh, and Philippines, however, took the matter way more seriously by calling their initiative ‘economic diplomacy’ and ensuring that their remittances went up by $70 billion, $28 billion, and $15 billion respectively during the same period. India, today, is the world’s largest recipient of workers’ remittances after China.

President Mamnoon Hussain went on a four-day visit to Qatar, where he was expected to encourage export of manpower from Pakistan. However, emerging reports suggest the issue was not taken up enthusiastically, leaving the foreign office and HRD without much leverage to build upon. “There are no follow ups of such high profile visits which is why there is no substantial increase in manpower export,” an official familiar with the matter said.

Home remittances contribute seven percent to Pakistan’s GDP, and if the government does not take enough measures by consulting experts who enjoy a substantial influence in the diplomatic community, there can be serious repercussions. Senator Anwar Baig, quoting a high level former diplomat, said that if Pakistan’s external debt went over $100 billion mark; international financial institutions would demand rolling back the country’s nuclear programme to receive new loans.

Close to 10 million Pakistanis have gone abroad since 1971, and UAE and Saudi Arabia are the main employers. These countries now prefer Indian labour, which was a serious economic challenge for the PML-N government, already in murky waters over Panama Leaks.

Pakistan surely needs to improve the competitiveness of the economy to enable growth of exports to reduce dependence on inflow of remittances. The answer, perhaps, lies in serious reforms in most economic sectors to remove existing anomalies, which would enhance exports, home remittances and thus help build reserves which mostly contain foreign loans.

Pakistan’s economic distress calls for serious evaluation of the ailing economy rather than cosmetic measures. The government seems to think that securing more loans was economic success and the answer to the problems. However, it was the real cause of economic anguish for our nation in the long term. The unforgiving quantum of loans being acquired by the current government would spell serious doom for the economy in the coming years.

The writer is a senior journalist based in Islamabad