Difficult choices

It’s time to talk seriously about Pakistan’s fiscal crisis. Most of those in power seem to have wished it away. Others have used fiscal tactics designed to delay the impending doom. But the problem has not left us; if anything, it is now closer than ever. Bond issues, domestic loans, depreciation – all have only delayed the inevitable. Over a single year, Pakistan’s current account deficit has spiked up by 42.5 percent. In a short two-year period, Pakistan’s current account deficit has gone up from $4.88 billion to over $18 billion. Whatever the changes in the international environment, the situation speaks to the almost criminal mismanagement of Pakistan’s fiscal economy. How can a country’s fiscal deficit quadruple in two years? There are few who have meticulously tried to document this story. There have been two major changes affecting imports in the last two years, the first being the increase in oil prices, the second the initiation of the China-Pakistan Economic Corridor. On the other side, Pakistan’s exports have continued to crash despite the former government having claimed to end power outages in industries, and announcing a number of export-friendly policies. 

With Pakistan’s total foreign reserves left at around $15.7 billion, the country only has the money to stay afloat for around nine months. This leaves the next government with two options: either it will need to take out a new set of loans, such as another IMF bailout, or it needs to take emergency measures to rein in the current account deficit. Neither is an easy choice but it is between making the difficult choice and delaying making the difficult choice. The delay option was exercised by the previous government perhaps in the hope that the economic recovery in the country would sort the situation out, but that promise never came true. Pakistan’s imports have continued to spiral to around $66.2 billion while exports only increased to $29.9 billion. The yawning gap between imports and exports will only get wider under the current policies. Import duties on a number of items were introduced by former finance minister Ishaq Dar. Now new duties have been introduced by the caretaker government. Similarly, while depreciation is thought to be another way out, there has been little to show for these policies too. There is little time for Pakistan to be pulled out of a financial crisis. The next government will need a strong economic plan to deal with the current account deficit.