Barring the pre-election melodrama, it seems that the winning government will be faced with an insurmountable challenge as Pakistan sets out to seek its second IMF bailout in five years.
With Islamabad supplicating to China for loans and further negotiating a fresh bail-out package from the IMF, the government is becoming increasingly reliant on external borrowing, tangling into hefty debt-servicing charges.
Where successive governments relied on quick-fix economic injections to resuscitate a flat lining economic regime, Pakistan’s economic policy historically shackled itself to international patron organisations. Today, the country is at an economic slump in the wake of an impromptu devaluation. Facing escalated inflation, the value of the mounting foreign debt has multiplied as the local currency has depreciated and the corresponding interest rates have also escalated. As the oil prices surge, along with the strengthening Dollar, Pakistan seems more and more unlikely to meet its piling foreign debt obligations.
The foremost exigent task for the incoming political party upon assuming office should be a re-hauling of our quick-fix economic policies that seek to temporarily plug the leaks in our fiscal bearing. For the incoming government that entails building a comprehensive and detailed agenda to protect Pakistan’s balance of payments, a programme to build Pakistan’s foreign exchange reserves and ultimately mend obsolete fiscal policies. The incoming government needs to meet external liabilities head-on, renegotiating the terms of the liabilities with cheaper and longer-term loans. Further foreign debt should only be undertaken with clear feasibilities negotiated on pay backs to ameliorate their impact on foreign reserves.
While CPEC is heralded as a boon for the economy, the loans accompanying the exorbitant development project add to Pakistan’s liabilities. It will fall to the incoming government to renegotiate the existing terms of CPEC (China Pakistan Economic Corridor) in light of the countries creaky financial standing.
The IMF has to be a last resort, for it opens up the country’s political and economic regime to policies and clampdowns which are aimed at getting returns on its lending, primarily through imposition of value added tax (VAT) – adding to the woes of the common man already battling inflation. Ultimately, the state has to look inward, upholding our home industry and encouraging national SMEs (small and medium sized enterprises) over imports, with an eye to generating employment.
With public debt escalating and ballooning trade deficits the country is teetering at an economic precipice from which the winning political party will need to pull the country back – using more than political rhetoric and fundraising abilities.