Protecting economic sovereignty

Is Pakistan being led down the same path as Greece? It is imperative the dependence on foreign financing is reduced

Prime Minister Nawaz Sharif’s recent visit to the US was preceded by vociferous assertions from the Foreign Office and other official sources about the resolve to resist any pressure to roll back our nuclear programme. There is no smoke without fire and there is every possibility that such pressure perhaps does exist. Reports in the international media have speculated on the possibility that after the successful capping of Iran’s nuclear programme, Pakistan is next on the US agenda. Presumably, President Barack Obama did not invite Prime Minister Nawaz Sharif to Washington to hear him out; rather he wanted his guest to hear him out.

The question is: can Pakistan withstand the pressure? The answer is not an irrevocable yes. One recent episode adds substance to this apprehension. The interior ministry cancelled the registration of an international NGO on unspecified charges of anti-national activities. Less than 100 hours later, the decision was reversed. In the case of Iran, the US stance was that ‘all options are on the table’, implying explicitly that the military option could also be used. In Pakistan’s case, the US may not need to go that far. The fragility of Pakistan’s economy — on account of heavy dependence on external financing of domestic and foreign deficits — may require only a mere tightening of financial variables to bring Pakistan to its knees.

Two basic factors militate against Pakistan’s economic sovereignty. One is the large foreign trade deficit and the other is foreign control of strategic sectors of the economy. With respect to the former, imports outpace exports by a wide margin. Remittances and capital inflows are insufficient to fill the gap, forcing the government to repeatedly approach the IMF and other international lending agencies, including private banks, for bailout.

With respect to the latter, post-2000 privatisation has placed key sectors of the economy — banking, telecommunications, oil refining, thermal power generation, etc. — almost entirely in foreign hands. Many of these entities are in the hands of companies from countries that the government deems it cannot afford to offend. The mere matter of houbara bustard hunting is a case in point. Privatisation of national enterprises to foreign firms also means that the initial one-time capital inflow is followed by a permanent profit outflow in foreign exchange. The sharp rise in services deficit post-2003 is a case in point.

Abject dependence on international financial markets and foreign companies has created a dangerous situation. The mere act of the IMF’s refusal to come to Pakistan’s aid in meeting its international payments commitments will lead to an explosive balance of payments crisis. Among other serious problems, the inability to import oil will ground all transportation, choke the economy and perhaps even compromise our ability to defend the country against aggressors.

Two fundamental measures are needed to assure the country’s economic sovereignty. One is to reduce oil import growth, so as to limit the demand for foreign exchange. Reducing the import-export gap will temper Pakistan’s need to extend its kashkol before international creditors, thereby blunting their leverage over the country’s economic management. The other is to halt the privatisation programme and take actions to regain control over strategic sectors of the economy.

Two steps are needed to reduce oil import growth. One is to shift long-distance goods transportation from road to rail, given that trains use about one-third less fuel per tonne-kilometer compared to trucks. A possible way out could be to create a holding company to own Pakistan Railways and the NLC and create an integrated transport regime; whereby, long-distance transportation is carried out by container trains, with the containers then loaded onto trucks for short-distance transportation to their destinations. The measure is likely to reduce high-speed diesel consumption by about 10-15 per cent, thereby saving foreign exchange. The other is to develop a coal-based power generation programme. There is enough coal in Sindh and Balochistan to generate electricity for the entire country for the next few decades. Such a measure will substantially reduce furnace oil imports, thereby saving foreign exchange.

The situation is critical and failure to take remedial structural measures will lead Pakistan down the pit that Greece has now landed itself in. It is imperative that the dependence on foreign financing is reduced. Greece has been bankrupted because foreign creditors continued to lend despite clear indications for over a decade of its growing debt unsustainability. Pakistan has continued to receive ‘praise’ for its economic management and uninterrupted donor financing, despite repeated failure to meet IMF’s conditionalities — receiving waivers all along! Is Pakistan being led down the same path as Greece? If yes, distress sale of economic assets at throwaway prices to foreign interests will not be the only pound of flesh that will be extorted from Pakistan.

Published in The Express Tribune, November 4^th, 2015.

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