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Money Matters

Debt or independence?

By Mehtab Haider.
Mon, 08, 18

Pakistan’s gross financing requirements were projected around $26 billion to $27 billion for the current fiscal, so external account will remain under pressures in the months ahead, while the net financing requirement will be around $11.6 billion.

Pakistan’s gross financing requirements were projected around $26 billion to $27 billion for the current fiscal, so external account will remain under pressures in the months ahead, while the net financing requirement will be around $11.6 billion.

It’s like burning the candles at both ends because on one side the yawning current account deficit (CAD) is depleting foreign currency reserves and on other external debt is swelling at a cutthroat rate, casting questions on the sustainability of foreign debt.

Pakistan Tehreek-e-Insaf (PTI) leadership has been talking a lot about the macroeconomic issues on the TV talk shows, but has so far not come up with a strategy to avert a full-blown crisis.

Asad Umar, the nominated minister for finance, must sit down with the economic team for preparing roadmap on the basis of short, medium- and long-term strategies to deal with the macroeconomic challenges.

Talking to The News, one of the top economists of the country argued that the expected finance minister must get his homework done before formally taking oath and then start implementing his government’s strategy, in true letter and spirit, from his first day in the office.

The economic challenges cannot be overcome with mere slogans, speeches, and rhetoric as it takes full dedication, determination, and serious-mindedness to deal with them.

Pakistan’s CAD touched a negative $18 billion or 5.7 percent of the GDP in the last fiscal (2017-18), despite the fact that the planning division had initially envisaged the CAD at over $10 billion but finance ministry forced them to slash it down to $9 billion.

The projection model proved flawed and the total CAD doubled, exposing the botched macroeconomic modeling done by the economists due to which they could not visualise what was actually going on, on the ground.The CAD was projected to be slowing down despite the fact that last year the previous Pakistan Muslim League-Nawaz (PML-N) led government was all-out desperate to complete energy and infrastructure projects before completing its five-year term. But instead of giving professional advice they bowed down before the political masters and made wrong projections for which the country had to pay a heavy price.

In the last 12 months, the country’s hard-earned foreign currency reserves depleted in the range of $7.5 billion to $9 billion and fell to slightly above $9 billion. With the injections of $2 billion from China, the reserves went up and crossed $10 billion mark in recent weeks.

Now the economic managers are again insisting that the gross financing requirement would be in the range of $22 billion because the CAD was bound to reduce in the ongoing fiscal year.

The trade deficit, which stood at negative $31 billion, would reduce with the projected increase in exports and decrease in imports in the current fiscal.

The CAD, according to their projection, would be around $14 billion to $15 billion because of a slowdown in imports especially with a drop in China-Pakistan Economic Corridor (CPEC) related imports as all major machineries for projects were already imported.

Thus there would be much less pressure on import front. The exports will pick up pace and as a result the trade gap will narrow down.

On the external front, there is need to reduce the increasing trade deficit and first of all the coming federal cabinet led by Imran Khan, chairman PTI, soon after assuming charge must approve a summary for increasing additional custom duty by one percent on all imported items and jack up regulatory duty on all luxury imports.

The PTI must declare an emergency for increasing exports and encourage all the citizens of the country to contribute in the government’s efforts to ensure ease of doing business and accelerating exports from day one as a main agenda of the public and private sector simultaneously.

If the status quo persists, the exports will not increase and our economic ills will continue to haunt us for a long time to come.

The remittances witnessed 25 percent growth in first month of the current fiscal year and the economic managers are pinning hopes that Pakistanis living abroad would send home remittals in the range of over $21 billion in 2018-19 against $19.6 billion in the last fiscal year. The growth of 25 percent during Hajj season is amazing and we are hopeful that this trend will hang on in the remaining months of the fiscal. The foreign direct investment is also expected to boost in coming months.

The debate in Pakistan revolves around whether the new PTI-led government was bound to approach the IMF or it can sustain without it.

The answer is quite obvious and clear that it depends on whether we are ready to pursue required reforms by tightening our belt or not. In other words we have to do some soul-searching to ascertain if we are intended to postpone crisis for few years by getting another bailout or we have a homegrown agenda to stand on our feet.

The IMF package can provide us with a breathing space but we will have to take tough steps to ensure macroeconomic stability and then become able to deliver the goods in the shape of sustained growth. Without achieving growth on durable basis in the range of 8 to 10 percent for next 10 to 20 years, no one should dream of creating ten million jobs in a blink of an eye.

The growing dependence on import-led growth put the country’s growth path into danger zone because when a country starts accomplishing higher growth, its twin deficits became problematic areas whereby the country could not manage its financing without creating debt burden. Pakistan has plunged into this viscous cycle time and again and now it is apparently headed towards repeating the history.

It is the duty of researchers, academicians, and scholars on economic front to analyse these aspects and suggest remedial measures to forefend such crisis in future.

Without pursuing a reform agenda, developed with the consensus of all mainstream political parties, nothing substantial can be achieved and all hopes will come crashing down.

It requires political and economic vision, commitment and an able team to achieve all the aforementioned objectives as the time of sloganeering and resting on our laurels has gone and the age of spinning into demonstrable as well as result-oriented action has come.

The writer is a staff member