Dismal economic growth, fiscal conditions to persist

Economist sees big financing gap in 2013, return to IMF for bailout.

ISLAMABAD: Pakistan’s dismal economic growth and its worsening fiscal conditions are likely to persist in the upcoming year, leaving the country at the mercy of international lenders, predicts Dr Ashfaq Hasan Khan, Dean of National University of Sciences and Technology’s business school.

He was speaking at a consultation forum organised by the Centre for Research and Security Studies (CRSS) here on Friday to discuss Pakistan’s performance during 2012 in the areas of economy, energy, law and democratisation.

CRSS is an Islamabad-based research and advocacy organisation focused on security and governance issues.

Khan believed that Pakistan would face a large financing gap in 2013 and would not be able to service external debt with current State Bank’s reserves of $8.5 billion. The result – return to the International Monetary Fund (IMF).

“Pakistan has no choice but to go to the IMF once again for a bailout package,” he said. “The sooner we go the better.” However, Khan was not certain whether the IMF would negotiate with the outgoing government.

He expected public debt to rise sharply because of a large budget deficit and depreciation in rupee’s value. “One rupee depreciation will add Rs60 billion to the public debt.”

Khan suggested that Pakistan should go to the IMF for a new programme, bring down fiscal deficit by 3 to 3.5 percentage points in the next three years, implement tax reforms and accelerate privatisation of bleeding public sector enterprises.

“The issues are not insurmountable, but there’s no quick fix,” he said. “We need an honest, competent and patriotic leadership to revive the economy.”

Highlighting other depressing economic indicators, Khan said economic growth had slowed down to around 3%, investment stood at only 12.5% of gross domestic product (GDP) – the lowest in 50 years – and large-scale manufacturing growth was only 0.5% per annum.

“There are no two opinions within and outside the country that Pakistan’s economy has never been in such a bad shape in the last 65 years,” he said.

Public debt more than doubled in the past four years and the country accumulated over $20 billion in external debt, he said. Moreover, Pakistan lost $6 billion of State Bank’s foreign reserves in the past 16 months.

Khan recalled that Pakistan had no finance minister for six months at a time when world economy was suffering from the 2008-09 food and fuel crisis, which showed that “the economy had never been on the government’s radar.”

Citing State Bank’s Annual Report 2010-11, he said while other emerging economies in the region recovered from the food and fuel crisis, Pakistan was still in a “low growth mode.”

Energy woes

In the second presentation, Arshad Abbasi, an energy expert, described cheap hydroelectricity as the solution to energy woes. “Cost per unit of hydroelectric power is only Rs0.19 per kilowatt hour compared to Rs18 per kwh for power produced through furnace oil,” he said.

The government had so far neglected hydropower, with some of the projects showing no progress even after years of planning, he said and suggested that the government needed a ‘national mission statement’ in 2013 to accelerate work on hydropower projects.

Currently, 70% of the country’s energy was coming from thermal power, necessitating the need for fuel import, Abbasi said.

Moreover, the residual fuel oil being imported was impure with around 8% water content, resulting in consumption of four times more fuel to produce the same amount of energy. “This increases tariff for the consumers,” Abbasi added.

Published in The Express Tribune, December 29^th, 2012.          

Like Business on Facebook to stay informed and join in the conversation.