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December 6, 2018

Economic confusion


December 6, 2018

Amidst rumours that he could be stepping down as finance minister, Asad Umar has added to the confusion by saying that Pakistan is in fact not facing an economic crisis. This is despite the fact that the PTI has been acting almost in panic mode. The prices of utilities such as gas and electricity have been spiked, the development budget slashed, the rupee devalued, and Prime Minister Imran Khan has been looking for aid everywhere. Umar’s claim that there is no economic crisis in the country makes the PTI government’s approach seem even more precarious. Rather than quashing the rumours that led to Monday’s stock market crash, the statement has ended up amplifying fears even more. One would have wanted the finance minister to admit that there is an economic crisis and ensure the people that the government knows exactly what it is doing to fix it. Whatever the limits of the government’s approach, one of the first indications is to look at what the finance minister is saying.

What has been worrying analysts is not as much that there is an economic crisis – Pakistan has almost always been on the brink of one – but the seemingly wavering approach of the government. One serious question that the finance minister needs to answer is that, if he is telling the truth, why is the government then still pursuing a bailout from the IMF? The reality is that there is a fiscal crisis, and the current account deficit that Pakistan faces is a serious one and undeniable. Asad Umar has claimed that the current account deficit has reduced from $2 billion to $1 billion per month under the PTI government, but it would be important to see whether this is true and how this has been achieved. In itself, if achieved, this would go a long way towards easing the fiscal crisis Pakistan faces.

The question has always been about how Pakistan intends to bridge the gap. The approach of the current government seems to be simply focused on getting loans and grants. Even though the government has paid lip service to increasing exports, it would be impossible to increase exports with a shrinking growth rate. The claim that all ‘fundamental economic indicators’ are improving under the current government has not been backed by the SBP yet. Transparency and openness is essential if the government wants to build confidence around the economy. It is treating the economy like there is an economic crisis and it needs to admit it and tackle it forthright. Confused statements give the appearance of a rudderless ship. This could be the worst thing for the Pakistani economy.

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