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Monday January 30, 2023

Economic emergency

December 14, 2022

Just as ‘Nero’ famously played the flute while Rome burnt, Pakistan’s Finance Minister Ishaq Dar has left no chance to repeatedly proclaim his ‘sub achha’ (all is well) mantra as the country’s economic outlook continues to slip under his watch.

Armed with that belief came Dar’s latest assessment of the economy heading in the ‘right direction’, as he defied warnings of a default faced by Pakistan in the near future on its foreign debt repayments.

The finance minister, who returned to Pakistan recently on the back of the latest rapprochement between the ruling PML-N and the power behind the throne, however remains the target of scorn by serious long-term observers of the country’s economy.

Pakistan’s economy today remains in a crisis mode, waiting for long overdue emergency measures to kick in and save the country from going over the cliff. The finance minister has been quick to denounce his detractors for being no more than prophets of doom, determined to overblow an all too manageable problem. Yet, nothing could be further from the truth.

For the moment, the promise of continued financial inflows to protect Pakistan’s liquid foreign reserves from boiling over to a full blown crisis remain central to Dar’s view of the world.

And, yet, the continued slippages surrounding the exchange rate of the rupee versus for instance the US dollar are enough to give sleepless nights to many policymakers. Dar’s promise of overseeing the Rupee gain ground substantially by up to 10 per cent or more, for now has only become a butt of popular jokes. In sharp contrast, projections for the future are based only on the rupee losing ground as time goes by.

Meanwhile, other challenges – notably, unbridled inflation – continue to haunt a range of stakeholders from high level policymakers to ordinary consumers. And in a year when Pakistan has been hit by colossal losses caused by flash floods, the country’s capacity to overcome the fallout any time soon remains in doubt.

At the same time, some of the most stubborn questions surrounding the long-term prospects for Pakistan’s economy remain as baffling as ever before. Successive regimes including the present day ruling structure have not only failed to revamp the country’s tax collection sector. An associated failure to brutally curtail expenditure in the public sector has only failed to narrow a dangerously widening budget deficit.

Besides, Pakistan’s economy has become increasingly dependent on imports over time rather than generating additional income from exports. The result has led to repeated balance of payments crises in Pakistan’s history, without any solution in sight except for Islamabad to continue blindly borrowing internationally.

In sharp contrast, Pakistan needs to cut its losses urgently through unprecedented and sweeping reforms never seen before in its history.

On the one hand, Pakistan can not afford to continue subsidizing its large public sector as before. Entities like PIA have acquired such a poor reputation for its worsening quality of service in multiple areas that long-term users have dubbed it as ‘perhaps it’ll arrive’. Year after year, successive governments have subsidized the state-owned air carrier and added to their stock of the national debt, without overdue reforms moving in tandem.

The core challenge tied to such mounting losses has grown over time, without remedial measures. Other entities such as the state-owned Water And Power Development Authority (Wapda) have incurred such massive losses over time that they pose nothing short of an unprecedented risk to Pakistan’s very survival. The ever growing circular debt fueled mainly by unpaid stock of mounting losses in the energy sector either needs to be resolved or it will eventually pull down whatever is left of Pakistan’s financial solvency.

On the other hand, a new way of running Pakistan’s economy must be led by an urgent change of priorities. With the country faced with the matter of remaining solvent, all available resources must be placed on the table. For decades, successive Pakistani rulers have created holy cows and kept them immune from sacrifice on the grounds of protecting the national interest. Today however, the national interest is just one: to secure Pakistan’s economy with a default on foreign payments clearly in sight.

Going forward, the increasingly pressing task to save Pakistan requires tough new reforms never seen before. The matter of patronage with the use of public-sector resources must end immediately, while every conceivable choice must be made to raise resources and serve Pakistan’s national interests.

As Pakistan faces the daunting task of being rescued from a coming disaster, an increasingly pressing question must be just one: can Pakistan be saved by the interests represented by Dar or others in the same league who have overseen the country’s economic interests badly squandered in the first place?

The writer is an Islamabad-based journalist who writes on political and economic affairs. He can be reached at: farhanbokhari@gmail.com

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