The fiscal deficit continues to grow with little or no reduction over the past year
The new finance minister has ruled out the possibility of the present government approaching the International Monetary Fund for another bailout. Let us assume for the sake of argument the minister’s expectation that foreign exchange reserves will increase by June 30, it is still foolhardy to suggest that all of our fiscal deficit woes will disappear by that time. Given the sheer scale of the economic problems, one must caution against a crisis-like situation developing that could only perhaps be avoided through tough-love measures – that one of Miftah Ismail’s predecessors Hafeez Pasha has alluded to. In a rush to convince people about the so-called improvement made in economic and fiscal policies, the PML-N government has claimed that a 5.8pc growth rate has been reached. This appears to be exaggerated as the actual figure is a percentage point or two lower. The fiscal deficit continues to grow with little or no reduction over the past year. A smaller allocation of Public Sector Development Programme would seriously impact the implementation of several CPEC projects. Are we ready for that?
Under these circumstances, we must resign ourselves to the inevitability of commercial borrowing – something in the region of $4 billion or more. This is a familiar route taken by successive governments – taking new loans to repay old ones. Somewhat needlessly concessions have been made for the affluent class as well as the corporate sector. This is unwise on account of the widening current account deficit and depleting reserves. If relief was uppermost in the government’s plan, it ought to have reduced the prices of petroleum products and everyday use goods.
We are inclined to believe that Pakistan may have to approach the IMF for a loan as a last resort. The loan, however, may not be large enough to sustain the next government during its five-year stint. Any future government may want to declare a financial emergency and take immediate measures to surmount the crisis.
Published in The Express Tribune, April 30th, 2018.
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