Saturday March 02, 2024

Pakistan’s troubled economy

December 10, 2023

ISLAMABAD: The expected approval for the release of a U$700 million tranche for Pakistan from the IMF’s executive board in Washington next month, is likely to give a fresh impetus to Pakistan’s soaring stock market. On its own in a more settled economy, the recently surging share prices would have instantly sparked the most compelling news indicating a broader recovery.

But in Pakistan’s case, this is hardly the whole truth. While share prices have recently soared on the back of Pakistan stepping back from the brink of a default on foreign debt payments, more fundamental economic indicators still present a dismal picture.

A foreign currency counts Pakistani rupee notes at a shop in Karachi, on March 2, 2023. — Online
A foreign currency counts Pakistani rupee notes at a shop in Karachi, on March 2, 2023. — Online

The latest inflation rate hovering around 40 per cent has renewed fears of a downwards economic slide having engulfed the broadest segment of Pakistan’s households. Consequently, Pakistan’s already impoverished households are set to be pushed further in the red, while relatively middle income families are likely to become more stressed. Meanwhile, overall economic growth remains roughly behind annual population growth – a reality that arguably suggests more negativity than positivity for the economy. And key sectors, notably agriculture and manufacturing-the twin engines for employment across Pakistan continue to perform modestly.

Pakistan’s caretaker cabinet is performing more lip service than laying the foundations for wider reforms, as the country prepares for the next elections in less than two months. The caretaker commerce minister, Gohar Ejaz, just this week publicly spelt out a target of $100billion for Pakistan’s exports in the coming times-a significant jump from ongoing annual exports of $30 billion. Exactly how even the groundwork for this significant jump will be performed in less than two months before the caretaker government departs, remains a mystery.

Similarly, bold TV ads backed by the finance ministry warning tax evaders to enroll in the tax net or loose their cellphone,electricity and gas connections is another case surrounded by uncertainty. The task of targeting the large community of tax evaders is no less than herculean, given the widespread incidence of evasion and the failure under successive governments to reverse this trend. And exactly how even the bare ground work for this exercise will be performed by election time, poses another formidably baffling question.

These sharply contradictory trends are faced with troubling questions over the future, as the country’s main contenders in the political race give few indications of presenting a credible game plan for managing the economy. The political race, as it stands today is led by rivals who are wedded primarily to reaping future political gains. Meanwhile, the missing element surrounding politics remains the absence of a well thought out set of policies for tackling Pakistan’s beleaguered economy surrounding the bulk of its population.

As trouble surrounding a challenged economy continues, Pakistan’s post election rulers will have to deal with two inter-related pitfalls. On the one hand, their failure to provide relief to a population forced under unprecedented belt tightening, will quickly become a growing outcry in the coming months. Pressure on fronts ranging from significantly higher gas and electricity tariffs to a jump in the cost of daily use items, will continue to fuel popular resentment with unpredictable consequences.

On the other hand, the failure by mainstream politicians to carve out well considered economic policies, in turn will only keep the investment climate subdued. For many prospective local investors, expanding businesses as bank interest rates across Pakistan remain at a historical high, is just not possible. But cutting interest rates is also similarly challenging as Pakistan remains tied to a tight IMF loan program, offering little scope for immediate relief.

Eventually, the writing on the wall is immensely clear. Without a full fledged crackdown to target tax evaders along side rough and tough steps to make government expenditure more meaningful, even half an economic recovery remains out of sight. And that tragically remains the outlook for Pakistan in the midst of another loan disbursement from the IMF and the country's stock market continuing its upwards journey.