The solution to Pakistan’s looming economic meltdown By Mir Mohammad Ali Khan

The challenge right now is to contain the damage. We can only rebuild once the extent of damage is ascertained

Economies, especially the sinking ones,are not saved by taking measures that please and appease people. Measures that might irritate the public at large in the present but give them relief in the future are the ones that will work.
Let’s just go through a review of where we stand as an economy before we discuss the solutions.
In my June 2 article Pakistan is heading towards a financial emergency, I had made some bold claims. I had clearly said that I would not be surprised if the dollar to rupee rate crosses 125 within a month – which it eventually did.
What does this mean for the common Pakistanis and the Pakistani economy? Well,to begin with, our external debt is $98 billion. Or it was. I say“was” because we earn in rupees and pay back in dollars.So, an increase in the value of the dollar means an increase in debt. The net reserves with the state bank are just $10 billion out of the $16 billion in total held by all banks. The debtto GDP figures the world and the economists keep giving to all of you are nothing but a fallacy. Debt to GDP means nothing because the GDP is not our income. It’s the value of all services and goods produced in a particular period. If Pakistan had produced $300 billion in the value of the GDP it by no means indicates that the 300 billion dollarsis our income. The amount of taxes we collect is our income. Nothing else. The profits we make as the Government of Pakistan from nationally run companies like PIA, Steel Mills, OGDC, PSO etc. are added income in addition to the tax collection. Our nationally run companies are not only making losses but are being given further money to continue their operations.
Simply put, we have no money left to pay our debts. In addition, our current account deficit has increased to almost $18 billion. Our imports are twice the amounts of our exports, more so than that but I am taking a softer approach. Our circular debt is at $10 billion. Our reserves can barely cover our imports for more than 33 days. That is the biggest sign of worry amongst many signs.
There is no single solution. No panacea. The measures that need to be taken are numerous, multifaceted and simultaneous too.
The first and the foremost solution is to ban certain imports outright,starting from luxurious items. Of course, the objections from world trade organisations will be there but there is a solution to this problem, which is to increase import duty on these items to such a high level that nobody can afford it.
One of the biggest myths is that devaluing your currency will increase your exports. Wrong. Devaluing your currency might discourage import but to think that it will increase your exports in a country like Pakistan is a wish and not a reality. Exports are not just price sensitive. That happens mostly in economies whose exports are already in an extremely healthy state. The cost of production increases in countries like Pakistan for the exporters because of the devaluation of its currency locally. Energy or electricity is one of the biggest cost for exporters in Pakistan. We import furnace oil to produce electricity in most cases. If the dollar is expensive than it means that our energy costs will increase, and this will increase the price of the finished goods to be exported out of Pakistan. Importers in other countries refuse to import such expensive products.
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