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Opinion

Capital suggestion

September 23, 2018

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To the IMF?

Economic activity and uncertainty are correlated. Pakistani investors are uncertain. Our foreign lenders – who have lent us nearly $100 billion – are uncertain. Uncertainty is a “situation which involves imperfect or unknown information”. Are we going to the IMF or not? Uncertainty is a “state of limited knowledge”. Uncertainty is a state “where it is impossible to exactly describe the existing state or a future outcome”. Are we going to the IMF or not? Do we have an alternative strategy or not?

Uncertainty is not the same as risk. Risk is where there is a “specific probability assigned to each outcome”. Uncertainty is immeasurable; risk is measurable. Uncertainty has profound consequences on business decision-making. And uncertainty is a critical factor in economics. Pakistani investors can accommodate risk, but uncertainty is awfully bad for business. Foreign creditors manage risk, but uncertainty is bad policy – bad for Pakistan.

Red alert: For the following 12 months, our gross external financing needs stand at $26 billion. By 2022, our external financing needs will mount to $45 billion. Are we going to the IMF or not? Do we have an alternative strategy or not? Uncertainty is negatively impacting business decision-making in Pakistan. Uncertainty is dampening the pace of economic activity in Pakistan. Uncertainty is making Pakistanis hoard cash instead of financing investments.

Remember, the PTI has to build five million houses and provide 10 million additional jobs. Pakistani and foreign investors are waiting for uncertainty to end. Are we going to the IMF or not? Do we have an alternative strategy or not? To be certain, the “opportunity cost of investment includes the value of the option to wait”. Investors have gone into wait-and-see mode.

Pakistani investors are holding back, waiting before they invest. Pakistani investors won’t invest until the level of economic uncertainty comes down. Pakistan’s private sector won’t hire until the level of economic uncertainty comes down. Over the past eight months, foreign investors have sold $300 million worth of equities on the Pakistan Stock Exchange. Uncertainty is hurting Pakistan.

Prime Minister Imran Khan faces little or no political opposition. Nawaz Sharif faces court cases (out only on bail). Shahbaz Sharif is too occupied with corruption charges. Asif Ali Zardari is neck-deep into serious charges of money laundering.

The PTI government must now perform on the economic front – and the biggest enemy on that front is uncertainty. How will we fill the current account deficit? How will we service external debt? What will be the rupee-dollar parity? What about monetary tightening and the rates of interest? Are we going to the IMF or not? If we aren’t going to the IMF, then what is our alternative strategy?

To be certain, bringing back looted wealth cannot be a substitute to an ‘economic strategy’. The current anti-corruption campaign and an economic strategy must run parallel to each other.

Right now, political uncertainty is not an issue. Right now, the issue is economic policy uncertainty. When will the Ministry of Finance end the economics of uncertainty? Are we going to the IMF or not? Do we have an alternative strategy or not?

The writer is a columnist based in Islamabad.

Email: [email protected] Twitter: @saleemfarrukh

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