Sunday November 28, 2021

In the midst of losing hope

July 28, 2021

LAHORE: Manmohan Singh copied and implemented the 1991 reform package of Pakistan (which we implemented partly) to put India on a sustained high growth path.

Respected economist Dr Hafeez Pasha disclosed this in his keynote address on challenges faced by Pakistan and its solutions.

Pasha shared that Singh came to his office when he was the assistant secretary general at the United Nation (2001-2007). He said that prior to 1991 the Indian economy was in a dire state.

The economist quoted Singh: “I ditto copy your 1991 liberal reform package that has taken India to historic heights because we had continuity of office,” your (Pakistan’s) economy is in dire state because of political instability.

That is a thing of the past now. Today, Pakistan is facing grave challenges that have created numerous uncertainties.

Pasha pointed out four grave challenges faced by our economy, the first being Covid-19 that continues to rage in our country despite the best efforts of the government. The fourth wave that emerged two weeks back is the deadly Indian variant.

The infection rate is rising at an alarming rate, particularly in Sindh. Our fragile economy braved the first three waves, though its resilience has been tested to its limit. Another lockdown would have a devastating impact on the economy.

Hostile Afghanistan is another challenge. The present Afghan government is deadly against Pakistan. Pakistan has clearly stated that it would not take sides in the internal rift in Afghanistan, but would act only as facilitator of peace.

Even then terrorist activities in Pakistan have increased. We have accepted runaway Afghan army soldiers as refugees. The Afghan situation must be tackled carefully and delicately.

The gravest challenge that Pakistan faces today is economic uncertainty. This government reduced the current account deficit because of many factors.

First, the imports were deliberately squeezed. Secondly, remittances increased phenomenally. We save around $3 billion due to travel restrictions (Hajj, Umrah and pleasure trips).

The exports also registered some increase. In the first 10 months of last fiscal, we posted a current account surplus.

But things started getting out of hand thereafter. In June our import bill was $6.3 billion – the highest ever one month imports in our history. The imports never reached this level even during 2017-18 when the cumulative import bill was much higher.

Current account deficit soared to $1.6 billion in June despite growth in remittances and exports. As things stand today, the import bill is likely to go up further in the coming months.

Remittances may go down as international travel opens up. The exports are unlikely to keep the growth momentum because of capacity constraints in textiles. The rupee may come under further pressure.

The fourth challenge is to get the talks with the International Monetary Fund (IMF) going. Currently, the talks are stalled.

Pakistan signed the toughest IMF package in its history under Hafeez Shiekh. The package was front loaded with painful measures that impacted the common man severely.

That done, the IMF demanded the economic managers to do more! The talks on quarterly performance review stalled as the government showed reluctance to do more.

Sheikh was replaced with Shaukat Tarin, who acted like a macho man and flatly refused to withdraw some exemptions or increase petrol rates or gas and power tariff to the liking of the IMF, though some increases were made.

But our economic situation is so precarious that if corrective steps suggested by the IMF were not taken, the fiscal deficit would cross 7 percent of the GDP against the agreed target of 5.5 percent of the GDP.

Moreover, without corrective measures, the current account deficit may range from $9-11 billion.

Next year, the debt servicing burden would increase by 35 percent. Seeing all these possibilities, the IMF is playing tough with Pakistani finance managers.

It may force them to depreciate the Pakistani currency massively and the central bank governor may be forced to take the interest rates to double digit at least. The cost of doing business would massively increase.

Dr Pasha, who managed the economy after 1998 nuclear tests by Pakistan, advised businessmen not to lose hope. Repetition of past mistakes shows that we have not learnt our lessons and people are losing hope.

Failure is not an option for our nation. This is not the time for political infighting. The nation must show the unity it exhibited, while approving the national action plan.