Dangerous waters

For all there are positives that can be identified regarding the economy there are some heavyweight negatives as well. The International Monetary Fund (IMF) has long been the lifeboat of choice but it is now issuing a stern warning that the risks associated with the economic and financial outlook have increased and debt repayment capacity especially in the medium term, has reduced. The IMF Executive Board has met to assess the ability to repay loans and the burgeoning current account deficit is revealed as 4.8 per cent of the total national income, $16.6 billion which is an astonishing 83 per cent greater than the official government estimates. This is not a faulty calculator, this is somebody somewhere getting it deceptively wrong and they have been found out.

The IMF is chiming with the FATF — and the US and assorted other states primarily in the EU — in saying that Pakistan needs to improve its anti-money laundering and counter terrorism financing regimes, and if the choir is all singing from the same song-sheet then it is time to listen rather than sing a different, and discordant version of the song that all have before them. There is a call to devalue the rupee and — again — a call to levy additional taxes in an attempt to tackle the growing budget deficit. The sheer size of the debt attached to CPEC is giving qualms to the IMF as well, and Pakistan is sailing ever deeper into a sea of debt.

Whilst the ship is listing it is not sinking. The near-term outlook for growth is generally favourable. Inflation is flatlined. Agriculture is strengthening. All good — but it is the macroeconomic indicators that are genuine cause for concern. The government cannot spin or borrow its way out of a debt burden that has the potential to turn a bit of a list to one side to a tipping point. The past finance minister is conveniently parked outside the country for now and has several cases to answer (he is unlikely to in the foreseeable future) and the elections loom. Course correction lies in political hands. Not a good omen.

Published in The Express Tribune, March 8^th, 2018.

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