On life support

LAHORE: Long and unpredictable blackouts, reaching 16 to 18 hours a day in some areas, have been disruptive for businesses, and they also increase the already high levels of dissatisfaction and frustration among the general public. There was talk of purchasing power from India, but the question is that is this even an option if the Kashmir issue remains unresolved?

Pakistan faces significant insurgency problems in the regions bordering Afghanistan, which could intensify with the drawdown of Nato forces. Sectarian violence in Balochistan and other provinces has been another source of unrest, while street crime in Karachi adds to security concerns. Oil imports are rising every year and so is the oil vulnerability index. Almost two-thirds of Pakistan’s remittances come from the Middle East. A further downturn in Europe would have negative effects, as a quarter of Pakistan’s exports go to Europe. Although links to most emerging markets are weak and capital flows to Pakistan are small, slow growth in emerging markets could add to external sector risks. The financial sector is not in imminent danger, but Pakistani banks remain vulnerable to further deterioration in the overall macro-economic environment.

Pakistan’s economy is clearly on the life support machine and international donor agencies have control of this machine and may unplug it anytime. The IMF has recommended a reform package including significant fiscal consolidation, a more flexible monetary and exchange rate policy, and comprehensive structural reforms to reduce crisis risks stemming from unsustainable fiscal and balance of payments positions. Reforms would also make the economy more resilient against shocks by increasing financial buffers, as the improved policy environment would likely attract significant international support.

Fahd Zafar

Published in The Express Tribune, September 22^nd, 2013.

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