The challenge that is 2023

This year the economy will be dependent on the decisions others take to bail us out

The challenge that is 2023


s we enter a new year, the economic uncertainty in Pakistan is much higher than the global economic insecurity. While developed economies hope to bring inflation down to 3-4 percent in 2023, we will be lucky to restrict it to 11 percent.

We have entered the new year with the entire world in turmoil. The Russian-Ukraine war has upset the energy supplies to such an extent that the European consumers and industries are paying six times higher price for gas than their Asian counterparts. We somehow managed the power and energy crisis in 2022 but we lack the resources to import adequate quantities of fossil fuels at a time when gas suppliers are already over-booked.

Pakistan has shown great resilience in the past. It somehow survived floods and earthquakes. Even the 1965 war with India did not stop sustained growth. In fact, it showed that the government had a strong writ over national affairs. After the war was over the price of wheat remained at the pre-war level of Rs 17 per 40 kg.

That resilience and the writ of the government are at a low ebb as the nation welcomes 2023. Several issues will haunt the nation in the coming year. The economy is obviously the main issue but addressing economic issues will require better governance, establishing a strict writ and sanity on the political front where polarisation has crossed decent limits.

Pakistan’s economic performance in 2023 is subject to many ifs and buts. On the economic side, the chances of survival will be higher if the IMF deal goes through. The going will be a little smoother if the World Bank, the Asian Development Bank and other donor agencies pitch in with loans. The ifs do not end there. We will also need to persuade friendly countries like Saudi Arabia, the UAE and China to roll over $10 billion short term loans in 2023 as well. If they also bring in the promised investments, that will be the icing on the cake.

But what will happen if the IMF refuses to release the next tranche or delays it significantly. We do not have the foreign exchange to import goods and services needed to run this country. We might see fuel rationing; we might see some industries closing down as almost all industries in Pakistan rely on some imports.

The government has already restricted the inputs imported by manufacturers to 50 percent of what they imported in 2021-22. The decline in productivity, if it continues in the coming year, will cause a wave of retrenchments. At the moment, the country has nothing in its hands to chart out future economic plans. Its economy in 2023 will be dependent on the decisions other take to bail it out. This might be extremely painful as the foreign powers and loan agencies that matter will impose conditions that will badly hurt the common man.

It may take years to bring real smiles to the faces of the common people. In the rosiest scenario, if all plans of this government go through, the best one could expect is a status quo, meaning that the lot of the people will not improve but there may be no further deterioration in living standards.

The expected loans will shield Pakistan from an immediate default. Much will then depend on how the government utilises this breather to stabilise the economy. Governments in the past have failed to grab many opportunities.

Will this government avail the opportunities that come its way? The loss-making public entities are a cruel drain on national resources. Many have zero value. They have stopped operations but their real estate is worth a little.

Take, for instance, the PECO in Lahore. It is still a listed company. Its publicly floated shares have been acquired by many top businessmen of the country at nominal prices. They are waiting for the day when PECO is auctioned. They want its real estate. In fact, real estate is the only resource left to it. The buyer will want it at a low price and sell its land. The factory is located at a prime location and will fetch a very high price.

The obstacles to its privatisation are because of vested interests. Will it not be prudent for the state to convert the PECO property into real estate and dispose of it at actual market price? Then there are thousands of acres of unutilised and, in some cases, encroached railway land.

The real estate of Pakistan Steel Mills is another example. The state could get hundreds of billions of rupees if this task were undertaken seriously and transparent auctions arranged. All loss-making public sector companies should be privatised in 2023. This will save about Rs 500-750 billion in recurring annual losses. This does not include power sector companies that are also adding Rs 1,500 billion annually to the so-called circular debt.

More than privatisation, there is a need to eliminate corruption from the system. This requires the government exert its writ strictly. Pakistan will continue to depend on heavy foreign exchange inflows if it fails to generate resources domestically. Obtaining foreign loans in 2023 will be very difficult. The new foreign loans, even if arranged, will come at very high interest rates.

Political polarisation is the most pressing issue in Pakistan. This is in fact frightening foreign creditors and friendly countries away. Investment decisions have been put on hold by some friendly countries as well as business houses. The government and the opposition are not on the same page on any issue. Whatever position the present government takes on any economic or social issue is strongly opposed by the opposition.

The reforms needed to steer the economy will be met with strong agitation against the government with open support likely from the opposition. This can be fatal for the economy. The coalition government itself is weak. The ruling coalition has to make compromises on many economic issues due to pressure from any of the coalition partners.

Numerous cases involving trillion of rupees are awaiting court decisions. By prioritising economic cases courts can take a lot of financial load off the state. Quick decisions on economic issues can also restore investors’ confidence. Crooks benefit from lengthy litigation to deter genuine investors. Managing the economy in 2023 will be easier if the judiciary plays a proactive role like the one it did in some political cases.

These are hard times for the economy. Every pillar of the state must play its role in managing the crisis. We generate around Rs 4,000 billion less revenue than our expenditure. The privatisation and quick court decisions can help plug this gap and provide the government with some breathing space to plan for a better future. We cannot afford to take more loans and add further debt-servicing burden. At the same time, it is not prudent to dole out subsidies from borrowed money and then pay high interest on that subsidy.

The writer is a senior economic reporter

The challenge that is 2023