Pakistan’s economy: After the global turbulence?

Special to The News

KARACHI: This week’s global economic turbulence driven a record fall in oil and international equity prices may have delivered an unexpected silver lining for Pakistan. But it promises to be just a temporary respite at best.

On the upside, a period ahead of lower than expected oil prices has laid the ground for a trimming of Pakistan’s international import bill, a possible fall in the global trade deficit depending on the direction of future exports and a lower than expected current account deficit. Together, these variables are set to create a further cushion against volatility on Pakistan’s external account, keeping the rupee in its present comfort zone. Meanwhile, lower oil prices are set to reduce a high rate of inflation recorded in January, establishing the ground for the central bank to consider reducing its interest rate by at least 50 basis points or half a percent later this month.

But in this emerging outlook newly emerging and existing economic tripwires cannot be taken lightly. For Pakistan’s economic managers, there is no room for complacency as the country continues with its tough journey through one of the most difficult transitions in Pakistan’s 73-year history. Since July 2019, the effects of belt-tightening conditions under an IMF loan programme and the government’s own failures to manage crucial aspects of the economy, have together brought a significant cost with pinching consequences felt by ordinary households.

A botched up and inadvisably zealous plan to export existing wheat stocks in an apparent effort to boost export income and the mismanagement of sugar stocks, subsequently came crashing down. The subsequent shortages of flour and sugar whose prices soared sharply in recent months, together spoke volumes over a poor ability to foresee the dangerous outcomes of short-term choices. In the drama that followed and witnessed through long queues of flour buying consumers across the country in late 2019, the ugly reality of food insecurity hit large parts of Pakistan with no precedents from recent memory. The flour and sugar crises have badly exposed a continuing crisis of governance across the grassroots of Pakistan.

Since the country embarked on an ill-advised and hurriedly undertaken devolution plan under the government of former president General (R) Pervez Musharraf, the writ of the Pakistani state has clearly weakened across the grassroots. This has subsequently deepened the crisis of governance with the state seen to have virtually abdicated its hold over parts of Pakistan.

The multi-faceted crisis across the agricultural sector and the failure by the government to recognise this challenge and undertake remedial measures, is just one element of the crisis of governance. Others include a recurring failure to tackle consistently falling farm incomes hit by a failure to tackle a variety of challenges.

These range from a continuing and widespread adulteration of agricultural inputs, declining performance of once robust scientific institutions dedicated to lifting agriculture yields and the failure of the state for timely interventions during moments of crisis surrounding Pakistan’s farmers. The visible complacency following crisis of the past year led by a failed cotton crop and challenges confronting farmers dependent on rice and a handful of other commodities further exposed the long-term neglect of this sector.

Meanwhile, reforming Pakistan’s economic picture will remain incomplete unless a vigorous plan is immediately adopted to tackle the many ills across public sector companies. These present a heavy drain on an economy which is ill equipped to deal with further financial burden unless that is passed on to the rest of society.

Under the fallout from the coronavirus scare, an already major white elephant - the Pakistan International Airlines (PIA) will likely suffer a downturn in revenue from seat sales depending on the period of ban on foreign visitors by Saudi Arabia. The coming weeks ahead of Ramazan, which is due to begin from end April this year, typically see a sharp increase in ticket sales to intending pilgrims heading to the holy land during the fasting month. Other large public sector companies have run in ever mounting losses with notable exceptions such as the OGDC or PPL.

Together, Pakistan’s public sector companies gobble up the equivalent of at least one percent or more of the national GDP in annual losses. With a total strength of below half a million employees, the drain through Pakistan’s public sector companies has caused an irreparable damage to the economy. Successive governments have shied away from either largescale privatisations or robust reforms to turn these companies into sustained profitability, as union after union has used strong arm tactics to defend their turfs. The end casualties have repeatedly been Pakistan’s 220 million people, burdened increasingly with heavier taxation and declining provisions of key social services.

As Pakistan’s economic managers sit down to prepare the annual budget for the next financial year due to begin in July, they are likely to draw some comfort from prospects of a reduced oil import bill in the coming months. Though a lower oil import bill is unlikely to be passed on to Pakistani consumers in its entirety, it is nevertheless set to improve key economic indicators but likely just for the short term. The latest global economic trends can hardly become the basis for Pakistan to lay its own house in order and sustainably so, if the country successfully embraces the most comprehensive economic transition in its history.