Fiscal warnings

The benefits of the China-Pakistan Economic Corridor regularly make the headlines. Less often reported is the debt that comes along with this transformative project. Debt has to be repaid as well as the interest; and the debt burden carried by Pakistan is reaching levels which are arousing concern among the institutions that lend to us. The Asian Development Bank (ADB) is one such and in its annual report it states baldly that Pakistan cannot get the best out of the CPEC project without drastic reforms in the fields of energy, regulatory practices and the regime relating to foreign currency. It is true, acknowledges the report, that the reforms that were initiated three years ago are welcome and steps in the right direction, but they are not sufficiently radical or far reaching.

The concern of the ADB is that currently the government is not attracting non-debt creating inflows and boosting exports — which have long been in the doldrums. Added to this is the increasingly perverse policy of bolstering foreign exchange reserves by taking ruinously expensive foreign loans — that also have to be paid back with their associated interest. The ADB is not alone in issuing a warning, the IMF is saying virtually the same thing and with both entities singing the same tune from the same songsheet the likelihood is that they are more right than wrong. Whilst this is obvious to external observers there seems to be little beyond tokenism internally. Pakistan cannot borrow its way out of debt, and notwithstanding improvements in security in the last two years the climate that would encourage inwards investment has yet to evolve in a way that is going to benefit the macro economy. The key is going to be flexibility, creativity and a biting of the bullet in terms of state-managed enterprises that continue to haemorrhage money. Greater diversity of products is not going to come about unless there is a modernisation of chains of productivity — all of which takes political will and application. The IMF and the ADB have written the recipe, it is for Pakistan now to bake the cake. 

Published in The Express Tribune, April 8^th, 2017.

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