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Thursday June 30, 2022

BoP crisis

April 10, 2022

A breath of fresh air. A ray of hope. The new government, however, is up against serious challenges. The rupee has lost 50 percent of its value over the past 3 years. The SBP has $11 billion which cannot even buy two months’ of imports. The SBP has to pay out $14 billion in the next nine months. That’s what a balance-of-payments (BoP) crisis is. A BoP crisis “occurs when a nation is unable to pay for essential imports or service its external debt repayments.”

Lebanon is passing through a serious BoP crisis. The Lebanese pound crashed from 1,500 to 33,000 to-a-dollar. Savers are unable to withdraw dollars from their accounts. People begin to cut back on food. People begin to die of hunger. People begin to apply for immigration. In 2020, the rate of inflation was 85 percent. Extreme poverty. Last year, the army “scrapped meat from the meals offered to on-duty soldiers, because of rising food prices.”

Lebanon was a “wealthy, liberal outpost in the Middle East.” Currently, “Lebanon’s leaders amuse themselves by insulting each other and accusing each other of corruption.” Around 80 percent of the population is now considered ‘poor’ and the Lebanese pound has lost 90 percent of its value. One hour of state electricity a day. According to the World Bank, “Lebanon’s deliberate depression is orchestrated by the country’s elite that has long captured the state and lived off its economic rents.”

Sri Lanka is also passing through a BoP crisis. The Sri Lankan rupee is in a free fall. The government has announced a seven-hour loadshedding. There’s a shortage of life saving drugs, foodstuffs and a number of other essential items. School exams have been postponed because of a shortage of paper and there’s no plastic left to issue drivers’ licenses. People are out on the streets defying curfew.

For the record, Pakistanis are spending too much on imports. Our current account deficit is about to hit the $20 billion mark, six percent of GDP. We are not competitive in the global marketplace. We are moving through premature deindustrialization. We have a multiple exchange rate system. Our elite have captured the state and are living off its economic rents. Our leaders are amusing themselves by insulting each other and accusing each other of corruption. To be certain, our vulnerability to a full-blown BoP crisis is high but we are in a state of ‘deliberate denial’. The BoP crisis is a man-made, deliberate depression. Public services collapse-and the main burden of the crisis falls on the middle and the poor classes. The BoP crisis is a trigger to a hundred other crises. The BoP crisis becomes a threat to a country’s “long-term stability and social peace”. The BoP crisis is a threat to a country’s national security.

We continue to look for an external messiah to bail us out. The solution actually lies within. Begin by reforming the power sector. Begin by breaking up cartels – the sugar cartel, the fertilizer cartel, the power cartel and the automobile cartel. Begin by creating a super-competitive domestic production sector. We have a billion people in our east and a hundred million land-locked in the west. Pakistan ought to connect the two. Pakistan has nine billion barrels of petroleum oil and 105 Tcf of shale gas. What we need is a new Hydrocarbon Exploration Licensing Policy.

The writer is a columnist based in Islamabad. He tweets @saleemfarrukh and can be reached at: farrukh15@hotmail.com

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