2018: economy led to the crossroads

All set to bid adieu, the year 2018 has proven to be a tumultuous one for Pakistan’s economy — mainly due to a chain of disruptive political events and financial mismanagement by the ruling class in the wake of the conclusion of the IMF bailout programme in August 2016. Pakistan, once again, is standing at the IMF doorstep — this time with even a bigger begging bowl. A prime minister who had vowed to run the economy without loans had no other option but to undertake his first foreign tour with a bowl in his hands soon after assuming control in August. Due to an inability to build a good economic team of politicians and bureaucrats and dearth of new ideas, the new PTI government is set to add Rs10 trillion to the public debt in just three years — an amount equal to what his biggest political foe added in five years.

Economic management no more remained a priority of the PML-N government after the Panama Papers leaks took the once-invincible Sharif political dynasty totally off guard in April 2016. The economic gains made during the three years of the IMF programme started eroding fast and today the country is in such a dire straits that its net international reserves, held by the central bank, are a negative $10 billion.

Two months before 2018 dawned, Ishaq Dar had escaped to the UK and Dr Miftah Ismail had his first challenge in the shape of a looming sword of the FATF grey list. He could not do much except complaining about the international politics and in February the country was put on a list of handful nations whose anti-money laundering and counterterrorism financing regimes were declared in violation of international norms and the UNSC resolutions.

The sense of good economic management was completely lost in the following three months, although Shahid Khaqan Abbasi, as PM, tried to introduce drastic tax reforms, only to be seen as political stunts coming at the fag end of the PML-N tenure. The interim setup tried to bring things in order and quietly invited the IMF team, but it was not allowed to move forward, for not having the mandate to bind the country in long-term agreements.

Came the new government in August 2018, with claims of not approaching the IMF. But it did nothing other than wasting three important months, unlike the experienced Ishaq Dar who had availed the IMF programme in 2013 that helped him consolidate the economic situation since the day he joined the finance ministry.

During the past four months, the PTI government, despite all its good intentions, has not been able to set a clear direction for the economy. Due to his indecisiveness, the honeymoon period that the current finance minister could have used for corrective actions, has been wasted. We are yet unable to convince the IMF to write a $12 billion cheque, despite devaluing/depreciating the currency by 11%, increasing the interest rate by 3.5%, hiking the electricity tariffs and imposing Rs120 billion in additional taxes. And on top of that, the finance minister has hinted at another mini-budget.

There is a need to end adhocism in economic policy and give economy and investors a clear direction. There is also a need to end the culture of writing cheques for exporters in the name of export incentives without first creating exportable surplus. The government has not yet either shown the wisdom to withdraw income tax concessions being availed by the affluent segments.

The country stands at the crossroads. While it is feared to go down further, it can still come out of the economic mess if better financial management is carried out. The economy cannot afford to be overburdened just because the PTI government wants to take credit to set thing right without the IMF. Mr Finance Minister you ought to come up with a clear economic vision in 2019.

Published in The Express Tribune, December 27^th, 2018.

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