The coming crunch

Unfortunately for the fledgling government of the Pakistan Tehreek-e-Insaf it is going to have to plough its furrow across the stony ground of the PML-N legacy for months, if not years, to come. By far the stoniest ground is fiscal. There is a rolling monetary crisis that touches every aspect of the economy and is going to cause pain down to the lowest common denominators, and soon at that. The latest bad news comes from the international ratings agency Fitch which is forecasting that real gross domestic product (GDP) will drop to 4.7 per cent in the current fiscal which makes the prospect of an IMF bailout all the more likely. According to Fitch, the economy is overheating and is going to require a reset one way or another, which is going to lead to a sharp decline in imports. This in turn will lead to higher interest rates. The Asian Development Bank is of a similar mind and has revised its own estimate of the economic growth rate down by one per cent to 4.8 per cent.

The country is trapped in a morass of debt, much of it incurred over the last two years and little or nothing debtwise can be laid at the door of the incumbents — at least not for at least two fiscal quarters. Foreign exchange reserves have dropped like the proverbial stone and now stand at around $16 billion or less than three months of import cover. The trade deficit stood at $3bn in August and the current account deficit at $1.9bn in July. External debt has climbed to $95.1bn and any future borrowings are going to in part if not whole go to servicing existing debt. The numbers could not be grimmer.

There are rumours of a deal to support Pakistan being done with the Kingdom of Saudi Arabia — the Saudis have ridden to our aid in the past — and there is talk of sequestering the assets of the previous finance minister but neither move is a fix. The IMF beckons, and the prescription is going to be bitter and painful.

Published in The Express Tribune, September 29^th, 2018.

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