Advisor to Prime Minister for Finance Shaukat Tarin, during his media talk last week, shared the quaint news quoting the World Bank report, saying poverty in Pakistan had come down articulating restaurants were generally running full capacity including surge in the sale of motorcycles in rural areas. These indicators, according to him, were the testimony of the government economic policies bearing fruit. But, he seemingly winked at the portion of the same World Bank report projecting that the poverty in Pakistan had increased to staggering 80 million people. Such a responsible top official was least expected to quote the report out of context because he exactly knew in minute details of the state of the economy and of the people who undoubtedly had been reeling from the price hike and almost double digit inflation taxing heavily on the pockets and the patience of the middle and lower middle class pushing them to the close proximity of extinction. The projection of the economy seems doubly misplaced when the advisor and its team went out on limb before the IMF to get the loan facility to contain the inflationary and possibly recessionary prognosis of the country’s economy.
Pakistan state of economy has been in shamble sadly exemplifying one step forward and two leaps backward during the last three years. The adverse impact of the COVID-19 on the economy might have certainly be the factor that could not be discounted for pulling down the economy. However, the governments’ incoherent policies mired in pontification have resulted in whimsical actions that might have hugely contributed to the series of crisis those had become norm than exception. Back-to-back crisis like flour and sugar crisis, as wheat was exported considering its surplus availability; and the sugar mafia played out its worse impulse to create sugar crisis in order to raise price to amass wealth at the expense of the poor people.
The government had to import wheat to make up the shortage but not without the atta crisis throughout the country both in terms of supply and higher prices. The sugar crisis was created by sugar mafia by playing out the tricky role of cartelization that resulted in shortage of supply in the market outpacing the demand. People have been bearing the brunt of high sugar price even today.
Now, the impending gas crisis is at hand as the government could not ensure its supply on time. Its load shedding, both at domestic and industrial sectors, during this winter is writing on the wall with adverse impact on the productivity of the industrial sector with accumulative negative impact on other sectors. The petrol crisis had been averted for the time being as the government accepted the demands of the petrol dealers by raising their profit margin though at the expense of the end consumers, people.
The economy of the country is sadly teetering on the brink of economic meltdown. It desperately needs shot in the arm of IMF loan of $6 billion to avert the impending crisis that has been looming large because of the precarious current and foreign account situation of the country. The State Bank’s lowest foreign exchange reserves during the last and current months are indeed worrisome notwithstanding restrictions on imports and other measures to control the smuggling of dollars. The confidence of the investors may surely shake as the IMF bail-out is still on hold because the international loaning agency is not prepared to play ball with Pakistan until the country meets the prior conditions to qualify for the loan.
The byword ‘financial adjustments’ entail reducing the development expenditures to Rs700 billion from Rs900 billion, imposition of additional taxes of Rs350 billion, withdrawal of tax exemptions, incremental increase on the levy of petroleum products to the extent of Rs30 during the current financial year, raise in electricity tariff, passage of SBP autonomy bill. The government apparently had agreed to these conditions leading to hammering out the agreement at the tertiary level requiring the nod of the Board of Directors (IMF) to walk the talk agreed.
Shaukat Tarin, while talking to the media last week in Karachi, ruled out the possibility of the “mini-budget” but hinted that the conditions relating to revenue generation through taxes, withdrawal of exemptions, raise in prices of petroleum products during the rest of the current financial year had to be met to convince the Board of Directors of the IMF to approve the loan facility. It may be noted here for sake of clarity that the agreement referred to finalise at the lower level with the government of Pakistan may facilitate the approval of Board of Directors of IMF, or it may not accord its approval pushing Pakistan back to square one ensuing in uncertainty with prohibitive consequences for the economy. The USA powerful voice may not favour the agreement to barrel through due to its own geo-politics strategic compelling interests in the region.
The prime minister’s confession last week that the scale of prevailing trade deficit has compelled the country to seek loan from IMF. It simply implied that this country had no leverage to push the IMF to oblige Pakistan with soft terms while taking into account the level of poverty, unemployment and rising inflation in the country making the lives of the people exceedingly miserable. The government’s anxiety might surely force to bowing down to the harsh conditions of IMF. For; the loaning agency had to operate within the parameters of underwriting the repayment of the loans as an established SOP to remain the business.
The bad loans are bad news for both the lender and indeed the worst case scenario for the borrower because default erodes the credibility of the delinquent borrower kicking it out from the international capital market also inhibiting its ability to undertake financial transactions at the global level and with the international financial institutions. It is being reported thus in the media, based on the official understanding of the successful negotiations with the IMF. This apparently had been concluded as secondary understanding pending the final endorsement of the IMF Board of Directors to qualify for the loan facility. So the final and conclusive outcome of the negotiations may be too close and yet may be too far at this stage.
The incumbent government is generally found as misreading the trends of the domestic and international market thus inflicting substantial losses to the economy because of its poor judgment. Therefore, back-to-back crisis had been the hallmark of the government during the last three years. The sugar lingering crisis, flour crisis, wheat and petrol crisis to name the few have been hunting the people of the country without respite.
The curse of spiraling inflation has exacerbated their miseries that seemingly have been compounding without fleeting moments. Administrative measures followed by rhetoric cannot reign the market forces those have to be handled through the short and long terms well-thought out reforms preceded by the surplus and ruthless execution by the competent experts devoid of the vested interests. People have been crying hoarse for the last couple of years but now they seemingly have lost all their hopes of better days in the foreseeable future. The sense of loss and hopelessness has seemingly overwhelmed them. The recent survey conducted by a reputable agency contains startling revelations that overwhelming majority of the people (73%) is not favourably inclined towards the PTI government and its policies.
The government is apparently in a fix. It may not afford to accept such cruel and unpopular conditions of IMF apprehending the backlash of the people who have already been bracing the hellfire of inflation shrinking their purchasing power out of their meager income. They are undoubtedly finding it very hard to make both ends meet while the expenditures on health and education of the children have to be put in the back burner in the face of the compelling exigencies of the maintenance of the subsistence level of the family members. For the political government to face the people in the run-up elections in 2023 in the background of such unpopular measures may cost them grim electoral prospects shoving it out of power with the title of as a failed government.
To embrace such political fate may be like earning the dishonor of failed government entailing political redundancy on the political horizon of the country for all times to come. Political government may not accept such political fate of it and therefore may strive to find the way out with the focus to maintain its political standing.
This ruling party is evidently in economic alleyway with no option to get out of the labyrinth of economic ground realities the country is confronted with. Apparently, the government has to acquiesce to the IMF conditions because the foreign exchange reserves are fast depleting purporting financial crisis. The dire prediction is reinforced as the current trade deficit is swelling, rising debt services payments are another major worry that cannot be wished away or pushed away, exports have not been increasing proportionately and foreign remittances have shown moderate increase. All these reasons are enough to twist the arm of the government to kneel down before the IMF and accept the conditions no matter how harsh these may be for the government politically and for the people. There seems no way out as the dynamics of the economy offers no reason of optimism though State Bank of Pakistan had projected lately that the GDP was likely to grow between 4 to 5 percent during the current financial year. It seemed a tall order.
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