The ticking time bomb of economic adversity

How Pakistan’s economy has dwindled over the past three decades is not difficult to gauge. At a time when IMF has literally refused to bail out Pakistan’s economy and the annual budget is likely to be announced on June 9, one can expect drain of resources either to pay interest on loans or to meet defence expenditures. After covering these two heads with around 7 trillion rupees of tax resources, there will be no money left to run the government and the development programme.

A staff level agreement with IMF which was to be reached in February this year for the release of the remaining $1.2 billion out of $7 billion of bailout package still hangs in the balance. In the financial year 2023-24, Pakistan needs around $35 billion to make external payments which reflects a doomsday scenario. Even if Saudi Arabia, the UAE and China agree to provide a couple of billion dollars to help Pakistan pull its economy from dire straits, it will not be possible for Islamabad to avoid a default on its foreign obligations. Delaying default by cosmetic measures would further compound the economic predicament of Pakistan and augment miseries for its 240 million people.

Is there a way out of the economy crisis that is ticking like a time bomb? Why are those at the helm of affairs unable to read the writing on the wall? What will be the implications if the economic time bomb explodes? When all the noticeable economic indicators in 2023 are adverse for Pakistan, can a nuclear state facing two-pronged security challenge from India and Afghanistan possess the capability and capacity to deal with the prevailing dangerous situation?

At a time when remittances and exports are down, inflation has reached 45%, foreign exchange reserves have dipped to a meager $4.5 billion, tax to GDP ratio is hardly 9.2% and the rupee value versus the US dollar and other major currencies of the world has hit its lowest ebb, how will the annual budget 2023-24 deal with such critical issues? When India can have foreign exchange reserves of $650 billion, exports of $660 billion and remittances of $100 billion, why is Pakistan, which was economically better than India four decades ago, suffering from a serious economic decline? Pakistan is now even behind Bangladesh in terms of per capita income, foreign exchange reserves and exports.

Moving away from fiscal statistics which tend to project a dismal picture of Pakistan’s economy, there are some hard realities which one cannot escape while analysing why the country has decayed in terms of governance, rule of law, accountability, per capita income, GDP and so forth. When national and provincial budgets are to be presented in coming weeks, will people get some relief from an unprecedented inflation and back-breaking price hike? When the rate of the rupee versus the dollar is going down on a daily basis and a staff level agreement with IMF has not been reached, how will Pakistan’s economic managers deal with the gap in income and expenditures? If the dollar continues to go up and crosses 325 per rupee, how will it impact the country’s import bill? From where will the resources for debt servicing, defence expenditures, running federal and provincial governments and development projects be arranged?

The economic crisis can only be dealt with by considering three measures, as follows:

First, the inept handling of economic matters by the coalition government can only be rectified by immediately announcing elections. Since April last year, the prices of essential commodities have been doubled; the rupee has suffered a steep fall against major international currencies; and there has been a decline in exports, remittances and per capita income, etc. When the country is in a deep political crisis, it is bound to have a negative impact on the economy. As the country’s survival is at stake, it means that those wielding power have failed, and there is need to install a neutral caretaker setup to hold free and fair elections. Efforts by the incumbents to prolong their stay in power by imposing a financial emergency and extending their term for another year or so would be disastrous and threaten further chaos. Due to the gap in official and open market rates of the dollar versus the rupee, the overseas Pakistanis, who play a leading role in running the economy by sending around $30 billion annually, are likely to resort to non-official channels, aggravating the balance of payments crisis.

Second, civilian leadership with a professional background coming through a genuine electoral process will re-set economic parameters of Pakistan. After all, Pakistan’s economy has declined because of corrupt and incompetent leadership which remained at the helm of affairs for around four decades. Bold, courageous and visionary decisions to eradicate corruption and nepotism and increase exports, foreign exchange reserves, per capita income and remittances in the coming 10 years is only possible if the elected government is allowed to function without pressures from non-political forces, adhering to strict work ethics. If successful economic models — like China, India, South Korea, Singapore, Taiwan, Turkey and the UAE — can leave their mark on the global order, why can’t Pakistan, which had an impressive economic and planning track record five decades ago, do it? It all goes down to the leadership which can either make or break a country. Unfortunately, Pakistan is still a feudal and tribal society where religious intolerance leads to violence and terrorism. Unless Pakistan is cleansed of corruption, nepotism, extremism and mafias, there is no way the country can defuse the ticking time bomb of the economic meltdown.

Third, without doers in the leadership who can ensure austerity in using public money, a 30% cut in non-developmental expenditures and eradication of VVIP culture, Pakistan’s cannot be pulled from economic coma. The recent statement by the Finance Minister that Pakistan will not default because it has $1 trillion worth of assets doesn’t make sense because the entire infrastructure, crops and other assets of the country have been mortgaged in order to secure loans.

Published in The Express Tribune, June 6^th, 2023.

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