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Tuesday February 07, 2023

‘Political instability contributed to exacerbating economic crisis’

January 23, 2023

Islamabad : Dr Abid Qaiyum Suleri, Executive Director of, the Sustainable Development Policy Institute, has remarked that the perma-crisis (a series of crises occurring globally one after the other), exacerbated global inflation, raising it to 24.5% currently.

Dr Suleri was speaking at a seminar on “Pakistan’s economy and debt challenges” organised here by SDPI. Dr Suleri suggested that political instability globally and nationally contributed to exacerbating the economic crisis developing into a vicious cycle. In the past few years, Pakistan has managed to sail smoothly amidst intensifying geo-political tensions, however, the future developments seem concerning. He stressed that we must remain politically correct with the West since loans from even friendly countries became conditional to being able to secure the next loan instalment from IMF. Now is perhaps the time for political forces in Pakistan realise that IMF is a must despite its tough conditionalities entailing non-popular decisions.

Dr Vaqar Ahmed, Joint Executive Director, SDPI, stressed political stability as lenders want assurance for repayment of long-term loans often undermined by political strife in the country. He observed that we must not walk away from what is committed to IMF and that we must demonstrate good public finance management by quickly packaging public sector development programmes which are instrumental in unlocking these foreign loans.

He said that by demonstrating good fiscal consolidation in this quarter we can go back to the diaspora and bond market and secure future loan payments. He said that an opportunity lies in every crisis and in this crisis, the opportunity is for exporters who can pivot and innovatively increase productivity. Last year, the sector generated $5 Billion in IT and ICT exports which is still possible this year. He recommended export through the indigenous resources and services sector, strengthening the debt coordination mechanism, GST harmonisation, effective targeted subsidies, and regaining the trust of the diaspora to revive remittances to transform the balance of payment crisis into an opportunity.

Dr Aqdas Afzal, from Habib University, predicted that by agreeing to the IMF’s conditions, the country can avert the immediate crisis, but the storm is yet to be over.” With the net foreign exchange reserves held by SBP at $4.6 billion, the policy-makers need to manoeuvre tactfully as pressure will mount further in the coming months due to debt servicing requirements and a significant decline in foreign exchange reserves. He urged policymakers to extend social protection, and increase stipends of BISP for the most vulnerable communities for sustainable reforms. He suggested that extending the social protection cushion will reduce resistance to much-needed structural reforms, particularly tax reforms, and stressed export tariff reforms and insulating the local manufacturers.

Ali Khizar from Business Recorder warned of a looming default on the private sector as industries are unable to import raw materials due to the import bans, choking the import-dependent economy and emphasised damage control for the private sector.

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