Trading on goodwill

Though a multiple-term veteran of the office, Finance Minister Ishaq Dar made a blunder when he discussed the country’s around $27 billion non-Paris Club debt in Washington, especially knowing that about $24 billion of it is held by China and the remainder by our brotherly Arab states. He should have known better. China deserves better, as do the Arab states. Pakistan has excellent relations with all these countries and can discuss these matters bilaterally with each. This demand on Dar’s judgement is justified because so much is riding on his judgement. Pakistan was only emerging from probably the worst economic crisis of its history when it was hit by admittedly the worst natural disaster of its history. The calamity prompted the World Bank to slash the country’s GDP growth forecast by half at a mere two per cent. In the wake of the calamity, the World Bank System – including the IMF – seems to have warmed up to Pakistan’s special fiscal and monetary needs in the wake of this epic disaster.

Returning to Pakistan’s foreign debt, although not a necessity per se, a restructuring of it will certainly help at this juncture. The good thing is that it is not Pakistan seeking relief; the lenders are offering it. President Macron of France is using his good offices to convene a meeting of Pakistan’s Western lenders to discuss a restructuring of Pakistan’s debt. China cannot be far behind in rising to the occasion. In fact, a Chinese foreign ministry spokesperson has already pledged Beijing’s utmost help for Pakistan through the rehabilitation of the flood victims. Some may think these positive gestures have made the job of the Pakistani finance minister much easier, but in reality it has become harder. While others are free to think as they please, Dar cannot allow anything to cloud his judgement. This is a make-or-break, now-or-never situation for Pakistan. There is no doubt that flood rehabilitation and reconstruction have to be priorities. But economic stabilization too must remain front and centre on Dar’s agenda. There are painful fiscal reforms to be made. The beleaguered energy sector is another issue. There are the challenges of expanding the tax net and balancing the budget. In short, there is a lot of hard work ahead of us before we can start thinking about economic progress and social development. It does not help that the world economy right now is flirting with a recession. Still, who said managing a nation’s economy is easy?

It is encouraging that the finance minister is looking at all options. It is imperative that Pakistan gets access to the climate response funding originally committed at Copenhagen and Glasgow. The world needs to realize that resilient reconstruction is both imperative and urgent. We need to think about what happens if this year’s freak weather phenomenon becomes a regular or frequent pattern. Then there is the problem of historic inflation. Dar seems to have scored some success in dampening inflationary expectations – but that is pretty much all that has been achieved as of now. The real work of bringing the economy back to a semblance of normalcy is still ahead of him. Tapping into the IMF’s food shock borrowing window should come in handy at this juncture, helping cushion the inflationary shocks Pakistani households are bearing. One area where the government has done well is getting its basic thinking right. Our foreign debt is the price we pay for development. We are not seeking any relief from any of our lenders beyond what they have offered to do on their own. We are working to fix our economy and we will continue to follow that path. We are starting reconstruction shortly to rehabilitate the millions rendered homeless. Now comes the hard part – walking the talk, especially the final two points.