New Economic Jargon, Old Economic Policies
Pakistan’s economy has been the victim of a vicious cycle of flawed policies pursued and implemented by its successive governments. Over the decades, money laundering, endemic corruption, mis-governance, and political expediency have together factored in to exacerbate economic troubles from a macro to a disturbingly micro level. Every government religiously holds its predecessor responsible for the economic mess it inherits. And ironically, almost every successive government ends up pursuing the same pattern of lopsided economic models.
The balance of payments crises, the widening import and export, currency devaluation, the shortfall in tax revenue, stagnant remittances and excessive borrowings from international donor agencies, friendly countries and domestic banks have all been standard bottlenecks on the path to leading Pakistan’s economy into self-sufficiency.
Whenever there is a change of guard in the corridors of power in Islamabad, almost every government typically approaches Saudi Arabia, the UAE, and China to seek more loans and investments in order to address depleting foreign currency reserves. The IMF is yet another outpost every government approaches to seek emergency funding to pay back previous foreign loans. And before the IMF approves its bailout package, every government resorts to devaluing the currency, hiking utility prices and reducing subsidies to qualify for external financing.
It is the same for the new government headed by Prime Minister Imran Khan notwithstanding the fact that he had repeatedly pledged to reverse a long vicious cycle of controversial economic models. However, little of what his administration has so far done varies from the policies of his predecessors.
The balance of payment crisis was understandably the biggest challenge for his administration after coming into power in August of last year. However, the solution Khan’s government came up with was one so hackneyed, it has run a well-rehearsed script down to a T.
To begin with, the new government resorted to devalue the rupee by 15.4 percent in an effort to prequalify to seek over $8 billion in an IMF bailout package — something Imran Khan had vowed in the past never to do. The controversial decision was aimed at bringing down a $37.6 billion trade deficit, which triggered the highest ever current account deficit in the last fiscal year. It was a standard policy option which preceding governments frequently exercised, with no significant result, to enhance exports and bring down the trade deficit. The rupee devaluation skyrocketed utility bills, everyday food commodities and medicines in a country where 39% of the population lives in multi-dimensional poverty.
Islamabad’s frenetic efforts to seek more loans and gas and oil on deferred payments are designed at averting a looming balance of payments crisis but current reserves are hardly enough for an eight to nine week import bill, dropped to $8.6 billion on January 26.
Javed Rana
Additionally, external borrowings continue to pile up. The Pakistani government has received $3 billion as balance of payments support from Saudi Arabia against an interest rate of 3.18 percent as well as $1 billion out of $3 billion from the UAE. Riyadh has also pledged another $3 billion in deferred payments on oil imports, while Islamabad is seeking the supply of $3.2 billion in oil from the UAE and $4 billion worth of liquefied natural gas on deferred payments from Qatar. And that’s not all. Pakistan is also in negotiations with China to seek borrowings worth $2 billion.
Islamabad’s frenetic efforts to seek more loans and gas and oil on deferred payments are designed at averting a looming balance of payments crisis but current reserves are hardly enough for an eight to nine week import bill, dropped to $8.6 billion on January 26.
Heavy external borrowing is no longer sustainable in the long run. After inheriting $95 billion in foreign loans, Prime Minister Imran Khan has so far added $4 billion in external borrowings and more loans are on the cards. His predecessor, Nawaz Sharif’s government had added a whopping $35 billion — the highest ever in the last 60 years. Moody’s, the US based credit rating agency, has forecast that Pakistan’s repayment to the accumulated foreign debt will reach 160 percent of its foreign currency reserves in 2019.
Another worry is the almost 17.9 trillion rupees or $128 billion in borrowings taken from domestic banks over the years by successive governments. Because of a shortfall in tax revenue, Khan’s government too has added 2.24 trillion rupees ($16.11 billion) to the internal debt within its five months in power and each year on average, the government in Islamabad is spending over a chilling 40 percent of its total budget solely on paying interest to domestic banks. Needless to say, this is not prudent or sustainable and the economic policies on the ground need to change as quickly as the political jargon has, in order to seek more permanent solutions.
• Javed Rana is Pakistani journalist based in Islamabad, he writes about Pakistan and Afghanistan. Tweet to @javedjournalist
