To say that Pakistan is facing an economic crisis would be an understatement in view of the permeating situation. In fact the country is fast drifting towards an economic precipice if the trend is not arrested through prudent and necessity-driven solutions. Chief economist of IMF Maurice Obstfeld in a presser at Bali referring to the economic melt-down in Pakistan said “Pakistan is facing financing gaps as it has been hit by a large fiscal and current account deficit, a low level of reserves and a currency which is too rigid and overvalued” Reportedly he also cautioned that increased Chinese involvement in Pakistan’s economy could bring both benefits and risks.
One can hardly take an issue with the depiction of the state of economy by the chief economist of IMF. The PTI government also has a similar take on the severity of the economic challenges and their debilitating impact on the economic health of the country. However there are different views about how the country slid into the economic abyss and the unmanageable debt liabilities.
The government believes that the situation was a sequel to the wrong and reckless economic policies pursued by the PML (N) government and its inability to prevent money laundering. For quite some time there is a persistent propaganda at the global level to attribute the debt situation to the Chinese loans, which also has been hinted in the statement of the IMF chief economist. This impression was precipitated by US Secretary of state Mike Pompeo’s statement in July this year warning against any bailout package doled out by the IMF for Pakistan’s troubled economy saying that the international lender should not provide Pakistan with money to repay Chinese lenders.
The Chinese foreign minister Wang Yi in a joint press conference with Shah Mahmood Qureshi in Islamabad during his recent visit quashed the notion about China being responsible for the increased debt liabilities of Pakistan saying “CPEC will usher in an era of unprecedented prosperity without saddling Pakistan’s economy with expensive debt, CPEC has not inflicted debt burden on Pakistan. When these projects are completed and enter into operation they will unleash huge economic benefits, creating considerable returns for Pakistan’s economy” Both countries agree that the Chinese loans were sustainable.
It is perhaps pertinent to point out that out of the $57 billion CPEC package $ 34 billion pertain to direct investment in energy project. The loans given for the rest of projects also have the lowest interest rate as compared to the rates charged by the international lending agencies. Mr. Wang made a credible and verifiable observation that 47% of the debt liabilities of Pakistan were related to IMF and Asian Development Bank.
The Chinese foreign minister was right on money while pointing out the benefits of CPEC to Pakistan in terms of 2% raise in the GDP growth, a view subscribed by many economists. Some CPEC projects have already been completed and the programme is set to enter its second phase. He also indicated China’s willingness to re-prioritise CPEC projects in view of the preferences of the PTI government; a truly friendly gesture which proves China’s credentials as an all-time friend of Pakistan. The CPEC will now be a demand-driven venture rather than the supply-driven undertaking with greater focus on socio-economic development. China has also welcomed the prospective Saudi investment in CPEC related projects.
It is an admitted reality that USA and India, certain lobbies at the international level and some elements within Pakistan are incessantly trying to belittle the significance of CPEC by creating all sorts of misgivings about it particularly Pakistan falling into Chinese debt-trap, in complete disregard to the economic activity that the project under CPEC were likely to generate after their completion.
However the Pakistani leadership both political and military have an abiding commitment to complete the CPEC projects, being aware and convinced of the perennial benefits that this mega-economic venture is likely to confer on Pakistan and the entire region.
Now coming to fixing the responsibility for the prevailing gloomy economic scenario, the PTI government to a greater extent seems right in apportioning the blame to the out-going PML (N) government. The unsustainable rise in the current account deficit is attributable to PML (N) government’s failure to make unavoidable adjustments in the value of rupee in 2016. Mifta Ismail who managed the economy at the fag-end of PML (N) government’s tenure in an article published in a national daily admitted that this inaction on the part of the government was a big mistake. He wrote “Nawaz Sharif was always a believer in strong currency that allowed people with fixed and low incomes to enjoy a higher standard of living. To me that meant keeping inflation low and alleviating the need to devalue. But because our inflation rate was still higher than that of our trading partners and some of our competing countries were devaluing, keeping the rupee fixed at a nominal exchange rate meant that our exports were losing competitiveness and our central bank was subsidising imports. This policy resulted in high current account deficits in the last two years and depletion of foreign exchange reserves” It is evident that the political decision to keep the value of rupee static harmed the economic interest of the country. Managing an economy demands rational and prudent decision-making premised on purely economic considerations, which unfortunately did not happen.
Pakistan currently has a current account deficit in the vicinity of $ 13 billion which is unsustainable as its affordability threshold is between $3 billion to$4billion. The unprecedented fall in the value of rupee against dollar is the result of ever mounting current account deficit which has hit hard the low income groups. The situation demands some tough decisions and the government does not have a choice other than raising prices of gas and electricity, curtailing subsidies and making structural macro-economic reforms that ensure export-led growth and broaden the tax-base to curtail the budgetary deficit. The Prime Minister has rightly and honestly admitted that the people would have to go through some tough time because of the inherited economic aberrations which require some time to be fixed.
The government is trying to seek cooperation of the friendly countries like Saudi Arabia, UAE and China to tide over the situation and indications are very positive and some direct foreign investment would soon be coming into the country. However its decision to go back to the IMF for wriggling out of the immediate crisis, though necessity-driven, is the most pragmatic move, notwithstanding criticism by the opposition and some detractors of the government. As a result of the IMF programme, if it materialises as anticipated, the country will have to take more belt-tightening measures in the short run which are likely to hurt certain sections of the society. But that is inevitable. People will have to make sacrifices for a better future and trust the government which they have mandated to run the affairs of the state.
The writer is a freelance columnist.
As a result of the IMF programme, if it materialises as anticipated, the country will have to take more belt-tightening measures in the short run which are likely to hurt certain sections of the society. But that is inevitable.