Financial implications of the current stand-off

Pakistan govt needs to pay more attention to the long neglected imperative of self-reliance and limit expenditures.

The full implications of the ongoing tussle between the US and our government, will be remains to be seen. Even if the current tensions do not culminate into outright hostility, the chances of international donor community further tightening its purse strings, vis-à-vis Pakistan, remains a major threat, contingency planning for which would not be out of place.

As things stand, we as a country are already heavily indebted to international lending agencies like the IMF, World Bank and other bilateral donors. Every year, we see a major chunk of our national income being used up to re-service our international debts. Instead of adopting tougher austerity measures and reshuffling spending priorities, our decision makers continue borrowing more money just to preserve the status quo. So our debt burden has continued to grow as our planners try to do no more than paying the interest on Pakistan’s accumulated debt, while continuing to divert another significant proportion of the available national income to meet escalating military expenditures. The resulting meager funding available for development expenditures can understandably achieve little progress in improving the lives of the citizenry.

The Asian Development Bank’s Outlook for 2011 has painted a gloomy picture of Pakistan’s economy. It predicts that national output will pick up modestly this year, and will be accompanied by unrelenting inflation and a weakening external financial position. It’s estimate of 3.7 per cent for the increase in GDP for 2012 is considerably lower than the government’s estimate of 4.5 per cent.

Even this lackluster growth rate is dependent on the recovery of the agricultural sector and in that the floods this year will not help. According to a UN rapid assessment report, floods in Sindh have damaged 80 per cent of standing crops this year. This significant loss obviously will affect export growth negatively and dampen the overall growth rate as well.

Pakistan, by most estimates, needs, on average, an annual growth rate of seven per cent, to absorb the three per cent increase in its labour force every year. Our population is young, with more than 65 per cent under the age of thirty. With fluctuating and increasingly dismal economic growth over the past few years, our government has not been able to take advantage of these favourable demographics. Instead, Pakistan’s economy is in the grips of stagflation, which means a protracted recession and double-digit inflation. Consequently, a third of our burgeoning population lives below the poverty line, and a majority of them deprived of basic services including access to clean water, sanitation, health, education and even sufficient food.

International donors have been quite reluctant to fulfill their aid pledges to Pakistan, compelling the cash-strapped government to secure conditionalities-laden IMF loans. Remaining unable to comply with many of the IMF conditions, the government recently claimed that it would not be asking for the remaining $4 billion of the total $11 billion loan secured from the IMF.

If the western world in general gangs up against us, and limits the country’s access over $4.75 billion annually in foreign assistance, it would be a big blow to our economy, which is already suffering heavily due to the war against terror, political instability, and a spate of major natural disasters.

It is thus high time for our decision-makers to pay more attention to the long neglected imperative of self-reliance. While worker remittances could provide a buffer for our large trade deficit, it is vital that the government simultaneously implements means to limit unjustifiable current expenditures and to effectively mobilise domestic resources by instituting long delayed taxation measures targeting those who have been fattening up by skimming the wealth of the land, instead of those already confronted by multiple forms of deprivation.

Published in The Express Tribune, October 2^nd, 2011.