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July 29, 2018

Challenges ahead


July 29, 2018

History is being re-written. For the first time in Pakistan’s electoral history, a non-dynastic political party will form the government. For the first time in three decades, a political party has won in all four provinces and the Islamabad Capital Territory. For the new PM it will be a crown of thorns; it will be like walking on burning coals. Here are the major challenges he will have to face.

$18 billion: Never in Pakistan’s history have we had an $18 billion current account deficit (CAD). What this means is that we are losing $1.5 billion a month. This year’s CAD is 45 percent higher than last year’s. Yes, a mere two years ago our CAD was $4.9 billion. This indeed will be the single biggest challenge for the new PM.

Our rupee is in free fall and exporters are holding back billions of dollars of receipts. We need to import petroleum products, machinery, LNG, coal, cooking oil and pulses. There is a real potential of a serious nation-wide fuel crisis with long queues at petrol pumps.

Yes, there are solutions, but the cure can be worse than the disease: more devaluation, further increase in the rate of interest, capital controls, additional import curtailment measures, incentives to exporters and recovery of stolen assets.

Rs4 trillion: The new government will have to rollover Rs4 trillion worth of T-bills (read: outstanding rupee debt) over the following three to four months. That will be a big challenge.

Rs2.2 trillion: Never in Pakistan’s history have we had a Rs2.2 trillion budgetary deficit. Yes, there are solutions, but the cure can be worse than the disease: development expenditures will have to be cut drastically, the government will have to tighten its belt and the National Finance Commission Award – that allocates financial resources to the provinces – might have to be abandoned.

Rs1.1 trillion: The circular debt has hit the fan on the roof – and has the potential of bringing down the entire financial system with it. Imagine, we produce around $12 billion worth of electricity a year, of which $4 billion is stolen or lost. Imagine, we also lose Rs200 billion worth of natural gas per annum to what is euphemistically referred to as ‘unaccounted-for-gas’.

The electricity tariff is bound to go up. Will the new PM be able to stop the tariff from going up? Expensive gas has shut down a couple of hundred textile mills in Punjab. What will the new PM do about it? For the new PM, there is absolutely no way out but to reform the entire energy sector – and that too on a war-footing.

Rs1.1 trillion: In 2017, a total of 190 Public Sector Enterprises lost Rs1.1 trillion. The accumulated loss over the past five years stands at a colossal Rs3.7 trillion. Imagine, each and every Pakistani family has lost Rs125,000 over the past five years.

Rs464 billion: This is a circular debt of another kind – debt created by the provincial food departments and other procurement agencies. What I heard from the State Bank of Pakistan (SBP) a couple of years ago was that the outstanding loans of commodity operations had surged to Rs464.2 billion.

These losses must be plugged. The only thing needed is political will. It is about re-positioning the assets our government owns. It is about re-organising the assets our government owns. All that is lacking is political will.

The new PM is up against a Rs12 trillion challenge. To be certain, this was a narrative-based election. And Pakistanis have wholeheartedly bought PM-to-be Imran Khan’s narrative. The PTI has emerged as a genuine national party. The 45-year duopoly of the PML-N and the PPP has been broken. It is now time to deliver.

The writer is a columnist based in Islamabad.

Email: [email protected] Twitter: @saleemfarrukh

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