FOCUS
As government is close to completing its fourth year in office, the International Monetary Fund has issued a critical review of the economy of the country.
The statement issued at the end of a detailed assessment of Pakistani economy, dubbed as Article IV consultations, with Finance Minister Ishaq Dar and his team, is in fact vindication of what many of the country’s economists have been saying for long.
When this government came into power in 2013, the economy undoubtedly has been in dire straits as it was on the verge of default.
Within months after assuming power, the government signed a 6.7 billion dollars bailout package to avert the imminent default.
The program, Extended Fund Facility, was successfully completed late last year with government announcing that it does not need to get into another IMF program and giving the impression that the economy is completely out of woods.
At that time, many economic experts warned the government that it is too early to get complacent on their achievements. Rising growth and foreign currency reserves alone could not be seen as a recipe for success and it still has a long and arduous road to achieve economic stability.
The IMF flagged the same warnings in its latest statement.
“After three years of reforms, Pakistan has strengthened its macroeconomic resilience and economic outlook, providing an opportunity to build on recent progress with structural reforms and set the economy on a higher growth path,” it said.
“However, a number of challenges in the fiscal, external and energy sectors could affect the hard-won stability gains in the period ahead,,” it maintained calling for strong efforts for fiscal consolidation and the implementation of key structural reforms and vigilance in managing the country’s external position.
Some analysts also find fault with the IMF for not appropriately sounding same warnings to Pakistan during the EFF program and instead was heaping lavish praise on the country’s economic team without mentioning the possible pitfalls.
The Fund gave more than a dozen waivers despite failing to achieve the targets set for every review to allow the successful completion of the program.
And now when Pakistan has successfully completed the program as desired by the IMF, the international lender is issuing critical reviews for the economy of the country, highlighting the challenges which many believe should have been raised during the course of the program.
Though the government economic managers, particularly finance minister, still sound confident in their media interactions about the state of economy but critics say things are not that simple and at a time when the government is entering into an election, it is unlikely to take any step towards enforcing economic and energy reforms which might be unpopular.
The Fund expects country to achieve 5 percent growth rate in the current fiscal year and six percent in the next financial year on the back of improving global economy, rising CPEC-related investment recovering agriculture but lower-than expected growth in large scale manufacturing sector and falling exports could adversely impact overall growth.
The rising current account deficit – which is expected to be double than what was initially estimated to be 1.5 percent of the GDP, unabated growth in circular death, stagnant remittances and falling exports are serious challenges for the government.
The building up of foreign currency reserves has been touted by Mr Dar as one of the big achievements of his economic team, but
But they are feared to come under stress because of debt repayments in the coming months and years.
The forex reserves held by the State Bank stood at 16.7 billion dollars on March 24 showing a fall of 1.4 percent from 16.9 billion dollars because of external debt servicing. The external sector is expected to come under more stress because of large outflow in future.
Such pressures could only be countered by increasing exports, attracting more foreign investment, ensuring more foreign remittances and expediting privatization process.
But prospects of any tangible progress on these fronts are almost negligible in the near future.
Though the government had announced a big package to boost textile exports but it is yet to be seen how could this target could be achieved without ensuring value addition and low exchange rates for the currency.
Remittances inflow is almost stagnant. Gulf countries are a big source for foreign remittances for Pakistan but at a time when these countries are also facing economic challenges due to sharp fall in oil prices, one does not expect any significant progress on this front.
The privatization process has effectively been put in the cold storage and while the government is heading towards election process, it is unlikely to undertake any unpopular steps like privatization.
The problems in the energy sector too have not largely been fixed. The circular debt which the present government cleared in one go after coming into power has now been close to what it had inherited from the previous government.
According to Minister for Water and Power Khawaja Asif the circular debt at present stand at 365 billion rupees though some sources put it at 440 billion dollars.
With this government has still one more year to go, it is feared that it could leave the circular debt much higher than the 480 billion rupees in had inherited if it failed to clear it.
There are no easy answers to these questions being raised from different quarters and there is all likelihood that Pakistan would go back to the IMF for another bailout package to avert a crisis if no home-grown remedy was explored.
The present government should be appreciated for salvaging the economy from disaster but this achievement should not end up at complacency. Rather it should be followed by bold and sustained reforms to put these achievements on solid footing.
If one looks at the track record of what Pakistan has done on the economic front, it could easily be concluded on many occasions such achievements had been made but somehow those gains were squandered for short-term benefits.
Pakistan seems to losing another opportunity of consolidating its gains unless its leadership show political will to introduce badly-needed but unpopular reforms to consolidate those achievements.
The writer is a senior journalist based in Islamabad
