Pakistan at the precipice

During the week ending on 30 April, the country’s central bank had mere $10.5 billion reserves, not enough even to cover an import bill for two months. The trade and current account deficits are widening as the number of steps taken by the previous government to arrest the slide has made little or no impact. The country is in desperate need of foreign reserves to bring some semblance of certainty to the fragile economy.

The government of Shehbaz Sharif, which has been in the office for just about a month, has its work cut out already. As has been the case in the past the first stopover of any new Prime Minister of Pakistan has always been Saudi Arabia. Shehbaz undertook the visit to Saudi Arabia in the hope to get another financial bailout package. Riyadh has extended several bailout packages in the past. The last one in October when then PM Imran Khan visited Riyadh and was able to secure a $4.2 billion financial package. As part of the package, Saudi Arabia deposited $3 billion with the SBP while the $1.2 was earmarked for purchase of oil on deferred payment. But conditions attached to that bailout package underlined the level of distrust shown even by Pakistan’s “closest friends” Under the terms of the agreement, Saudi Arabia can withdraw the $3 billion deposits on a short notice of 72 hours.

Such conditionalities were unheard of in the past. Saudi Arabia previously extended similar financial assistance to Pakistan but on most occasions converted it into grants when Pakistan was unable to repay. After the May 1998 nuclear tests, Pakistan faced crippling economic sanctions. Saudi Arabia came to Pakistan’s rescue by supplying oil on deferred payment for several years, but later converted the loan into grant, thus giving a huge relief to dollar-strapped Pakistan. Similarly, when the PML-N government took charge in 2013, Saudi Arabia gifted $1.5 billion to Pakistan.

But that all is part of history now. The reason why even our best friends are now reluctant to extend financial support to us is because they realise we are always seeking bailout packages while hardly trying to put our house in order. There is a limit even to test your friends. We have reached a point where our friends are fed up with this “begging” policy. This means we are fast running out of options to run this country on bailouts. The situation requires a plan of action that must address structural problems in our economy so that Pakistan does not need injections of dollars from outside.

However, that is not possible with the prevailing political instability where rivals are competing for their own interests. For former PM Imran Khan, immediate election is the way forward. But the fact of the matter is that mere elections will not address Pakistan’s economic woes. For example, what are the guarantees that Imran will accept the results and will not come on the streets if his party fails to win the polls? It is certain Imran wants nothing short of victory in the elections. Also, even if he wins and wins with a two-thirds majority, can he deliver? His nearly-four year rule suggests that he may be a good orator but he lacks a plan to pull the country out of the current quagmire.

In fact, the challenges facing Pakistan are such that a single party may not be able to find a way out. Therefore, before elections, there has to be a grand dialogue among all stakeholders to assess the situation and suggest a way forward. At least on certain economic and foreign policy issues, Pakistan needs a bipartisan consensus, without which no government will be able to initiate the process of necessary reforms. The choice is clear: either let this country slip further into chaos or preempt a looming disaster!