External debt payments and burgeoning current account deficit are eating up foreign exchange reserves, making it inevitable for the country to seek another bailout package from the International Monetary Fund (IMF) to avert an impending balance of payment crisis.
It is now no longer the question of “if” but in fact of “when” Pakistan goes back to the IMF.
It means that the Pakistan Muslim League Nawaz (PML-N) government is leaving the country at the end of its tenure at the situation where it was when it assumed the office.
In between these over four years, there have been claims of finance minister Ishaq Dar that the economic team he headed has brought about a turnaround in the economic situation of the country which was on the brink of a default in 2013.
On September 29, the foreign currency reserves held by the State Bank of Pakistan stood at 13.85 billion dollars down from 14.14 billion dollars from the previous week.
The PML-N government has had no other option but to resort to IMF help when it came into power but following that, the requisite steps needed to address the long-running problems afflicting the economy like reforms in taxation system and energy sector were missing.
The tax-to-GDP ratio in Pakistan is over 12.5 percent which is among the lowest in the world. It has repeatedly triggered calls from international donors as well as bilateral donors for the country that it should broaden its tax base as it could not act as a parasite on them to fund its fiscal deficit.
The present government has shown its performance in the taxation sector by collecting high revenues but it was done through indirect taxation by raising existing tax rates, and little effort was done to bring the powerful untaxed lobbies into the tax net.
Similarly, after coming into power, the government paid 480 billion rupees in circular debt and vowed that it would not let this problem to recur by cracking down on corruption as well as pilferage. It said it would also bring improvement in the collection of outstanding amounts. But practically, not much was done in this regard, resulting in the piling up of the unpaid dues which now were estimated to surpass the amount inherited by the government from its predecessors.
Moreover, the government’s attention was solely focused on the installation of new power projects to overcome the power cuts, commonly known as load shedding, instead of taking steps to control power theft and pilferage which are major reasons for the power crisis in the country.
The government could have eased pressure on the foreign exchange reserves if it had taken timely steps to boost the country’s dwindling exports.
The PML-N has long been regarded as a business friendly political party because of the business background of its leadership, but ironically in the current tenure of the party, the business community complained that the party did not give due attention to the problems faced by them.
Though the ousted prime minister Nawaz Sharif at the beginning of the year announced a hefty relief package for the textile industry of the country, it has not produced the desired results so far. Many of the problems remain unaddressed as far as the textile industry is concerned.
The high exchange rate was one of the reasons blocking increase in the exports of the country but finance minister Ishaq Dar has persistently resisted any moves to devalue the local currency for fear of increase in inflation that could trigger public backlash.
However, financial markets experts say that the devaluation of the rupee is not just overdue but has become inevitable. They say that the sooner the government takes a decision on this matter the better it is.
The low exports and high imports have resulted in a massive current account deficit which brought the country’s foreign exchange reserves under tremendous pressure.
The government says the increase in current account deficit is because of the import of machinery for the China-Pakistan Economic Corridor (CPEC) projects, and once these projects become operational and generate economic activity and employment opportunities, it would lessen the current account deficit.
However, economic experts say that by the time these projects would become operational; a big chunk of these foreign exchange reserves would have been eaten up in the repayments of the external debt.
Moreover, analysts say the government is unlikely to take any major decisions on the economic front in the coming months as the finance minister himself has been embroiled in big financial scandals ranging from a case of amassing wealth beyond his means and Hudaibiya Paper Mills case to a big money laundering case against Sharif family in which he is a key witness.
Last week, the prosecution presented first witness in the NAB accountability court against Dar in assets beyond means case. Though Dar has rejected allegations, he has already been indicted in the case and is likely to remain entangled in the court cases at least until the general elections.
With two swords of Damocles’ hanging over his head, the finance minister is unlikely to concentrate on his job and much of his time in the coming months would be spent on contesting cases in the court.
Though he has shrugged off calls for his resignation from the opposition parties as well as many of his rivals and his party leadership has vowed support for him, pressure on him may intensify in future when Hudaibiya case is opened.
After Nawaz Sharif, the finance minister has been the second big target of attack for Imran Khan and PTI leaders.
But the PML-N is unlikely to buckle under opposition pressure unless some decision by the court comes against Mr Dar.
Besides daunting challenges faced by the economy, the current political uncertainty is also adversely affecting the economy of the country.
Such a situation in all likelihood would continue until the general elections which are due in the middle of next year.
Before that the government has to take some crucial decisions on the economic front. The million dollar question now is whether the government would be politically stable to take those decisions or it would leave them for the next government. It seems the government would opt for the later to avoid any negative repercussions.
The writer is a senior journalist based in Islamabad