Many alarmed voices have pointed out the steady erosion of Pakistan’s economy as a grave existential threat. In the first half of the year 2018, sharp deterioration in Pakistan’s foreign exchange reserves; the rise of US dollar versus Pakistani rupee, escalation of foreign and domestic debt and the huge trade gap reflect how serious the economic predicament of Pakistan is.
We stand at the brink of an economic disaster because of a huge gap in balance of payments and uncontrolled expenditures. Most of the national budget is swallowed up by debt servicing. In 2006, Pakistan’s foreign debt amounted to around 35 billion dollars which in 2018 has risen to 91 billion dollars. Likewise, domestic debt has also tripled in the last 12 years. Debt to GDP ratio is almost equal which further augments economic pressure resulting into more inflation, depreciation of Pakistani rupee vis-à -vis US dollar and other major world currencies, price hike, inflation and increase in indirect taxes particularly on petroleum products and electricity. Pakistan’s foreign exchange reserves, which amounted to around 25 billion dollars three years ago slumped to 16 billion dollars out of which reserves under State Bank stood at barely 10 billion dollars. This paltry amount is sufficient to meet only two months of country’s imports. Additionally, loans sought from China under China-Pakistan Economic Corridor (CPEC) will start maturing in a couple of years’ time, thus further deepening pressure on economic resources of the country.
When almost all economic indicators ranging from balance of payments, foreign exchange reserves and debt to GDP ratio are in the negative, one can expect shrinking space for Pakistan in domestic and foreign policy decision-making. The only cushion which provided some space to Pakistan’s economy in the form of overseas remittances also seem to have been squeezed to around 20 billion dollars during the current financial year. The amount from the US coalition support fund which was providing some budgetary support has also ceased to exist. With a population of more than 200 million people; serious water and environmental crises and highly negative economic indicators, the state of Pakistan is facing several existential threats. When a country is economically broke and lacks resources to improve quality of life of its people, the outcome is the fragility and failure of state.
In order to minimise its foreign debt and to improve the state of our depleting foreign exchange reserves, a policy of self-reliance must be practiced, instead of banking on foreign aid, loans and other forms of external borrowings
Although, the resilience of the people of Pakistan to cope with multiple crises cannot be contested, the current economic situation can rightly be termed as the mother of all crises because of three main reasons. First, more than 75 percent of the federal budget is for debt servicing and defence expenditures. The remaining 25 percent is for running the country’s administration and other expenditures. As a result, there is hardly any money left for development. The solution our leaders have applied for years is to borrow from local and foreign banks and lend institutions like the International Monetary Fund (IMF) World Bank and also Chinese banks. Such an arrangement adds to the country’s debt, which is already alarmingly high. Secondly, Pakistan’s foreign exchange reserves — which should have been sufficient for six months of imports — can hardly pay for the imports of two months. Ironically, Bangladesh, which is considered less developed than Pakistan, has foreign exchange reserves amounting to 33 billion dollars. Its exports also amounted to 33 billion dollars and its currency is currently stronger than Pakistan. Bangladesh has achieved this — like other developing countries — through sound economic policies. The huge trade imbalance of 33 billion dollars is another grey area in Pakistan’s economy with imports of 55 billion and exports of 22 billion dollars.
Thirdly we have the circular debt, which has reached an alarming 7.43 billion dollars and the huge losses incurred by Pakistan International Airlines (PIA), Steel Mills, Railways and other state owned organisations amounts to more than 4.1 billion dollars. As a result, every year, the government needs to arrange around 8 billion dollars to run these organisations, thus putting additional strain on the country’s resources.
Is there a practicable road map through which Pakistan can be pulled out of this economic quagmire, putting the country on the road to human and social development? There is no quick fix, but one can consider four measures, which if backed by commitment, dedication and seriousness can transform Pakistan from a fragile to a vibrant state in around fifteen years. First, it should be the responsibility of the commerce ministry to take appropriate measures for the enhancement of Pakistan’s exports. Likewise, Pakistan’s diplomatic missions abroad, particularly their trade and commercial sections, must explore foreign markets for their country’s products. Bridging the trade gap by minimising imports and maximising exports is the most practical way to pull Pakistan from the brink of economic disaster. Secondly, in order to minimise its foreign debt and to enhance its depleting foreign exchange reserves, a policy of self-reliance instead of banking on foreign aid, loans and other forms of external borrowings must be practiced. Without producing quality oriented local products and technology, Pakistan would remain dependent on foreign assistance thus compromising on its sovereignty.
Third, maximizing tax base, eradicating corruption, nepotism and ensuring good governance will certainly give a jump start to Pakistan’s economy. There is a vital link between economy and politics. If a country’s economy is broke and is on dole in that case, it cannot ensure political stability and will compromise on its sovereignty.
Pakistan cannot afford the luxury of irresponsible political behaviour, incompetent and corrupt law makers and public office holders. Unless the elites of Pakistan change their lifestyle and think about the country, instead of their personal interests, nothing will change.
The writer is Meritorious Professor of International Relations at the University of Karachi. He can be reached at amoonis@hotmail.com
Published in Daily Times, June 22nd 2018.
Source:Â https://dailytimes.com.pk/256195/deeper-into-the-economic-quicksand/
