Anatomy of crisis in Pakistan
THE challenges and paradoxical situation Pakistan is facing today — both on the economic and political fronts — has become a cause of real worry and concern for every house hold, political leaders, economists and intelligentsia. Common man is severely affected due to sky-rocketing inflation, unemployment, worsening Law and order situation and helplessly watching items of daily use getting out of their reach. Pakistan’s standing on the global economic rank of nations has recently fallen from 24th in 2017 to 47th, Finance Minister admitted at a news briefing while releasing results of Economic Survey of Pakistan. He didn’t mince his words while candidly acknowledging the alarming situation, Pakistan was going through. “That says it all,” he said. The grim data gave the cash-strapped government little room to introduce populist vote-attracting measures in the budget ahead of an election due to be held in October. The government is also under enormous pressure from the International Monetary Fund (IMF) to tighten expenditure to qualify for last tranche of a vital bailout package. Under the IMF’s terms, Pakistan has to do away with subsidies on energy and other sectors, allow the rupee to float against the US dollar, raise taxes and duties and restrict imports, as pre-conditions.
“It was extremely challenging for the government to carry out such strict reforms and we had a political cost,” Finance Minister said.” We have averted looming default for now”, he admitted but this may be a short-lived occasion to rejoice. Pakistan’s key economic indicators for the year ending 30 June 2023, show that economic growth declined to 0.29 per cent against 6.1 per cent a year earlier. As the economic crisis deepens and debt continues to increase, the federal and provincial governments have unanimously decided to shut markets by 8 PM across the country. The decision has been taken as part of the country’s efforts to conserve energy. According to Reuters, Pakistan’s central bank is widely expected to keep its key interest rate unchanged at 21% after aggressive rate hikes since April last year to tackle record high inflation amid the nation’s worst-ever economic crisis. The inflation readings are expected to fall due to high base effect. It is expected to be around 30% for June 2023 vs 38% in May. GDP growth was meagre 0.3%, which would probably be revised to negative once the final/revised GDP numbers are released next year.
Experts and financial wizards expect a 100 bps hike in policy rate. Rate hikes may also prove to be a signal to potential creditors about the authorities’ commitment towards resolving external imbalances. The policy decision will follow the annual budget which has been presented to parliament on last Friday. The government hopes to strike a balance between reforms to satisfy the IMF and measures to win over voters in an imminent election due by October. The country, with reserves to barely meet a month’s worth of imports, is undertaking steps to secure a $1.1 billion loan, part of a $6.5 billion IMF bailout package. These measures include raising taxes and removing blanket subsidies and artificial curbs on the exchange rate.
The fiscal deficit was 4.6% of GDP for the fiscal year up until April, a slight improvement from last year’s 4.9%, the survey showed. The primary balance recorded a surplus of 99 billion Pakistani rupees. Pakistan’s major dilemma is plummeting foreign exchange reserves, leading the government to enforce measures to curb imports. The current account deficit had narrowed to $3.3 billion by April – a 76% drop over the last year, the survey showed. The country’s trade deficit till May also declined by 40.4% to $25.8 billion, as imports fell by 29.2% to $51.2 billion, while exports declined by 12.1% to $25.4 billion, remittances of money sent by expatriates from abroad were down 13% for the FY23 until April, to $22.7 billion, which is a major cause of worry as it indicates the level of trust and confidence, expatriates have in the government.
A series of rolling disasters — including catastrophic flooding, political paralysis, exploding inflation and a resurgent terror threat and above all an uncertainty- both economic and political, are sending negative signals to the world community, which seriously hamper growth. It may also have consequences which trigger mass exodus from Pakistan. An expert at South Asia Center, warned that “The world didn’t like the outflow of refugees and weapons that came from countries like Syria and Libya. If the economy remains in a moribund state and there are shortages of goods and energy leading to a political crisis on the streets of major cities, that may incite terrorist groups to begin hitting at the government more directly, said Vice President of Asia group, an expert on the subject who is also a strategic advisor. “We could see a significant weakening of the state and its capacity to impose order. It is hard to overstate the difficulty of Pakistan’s current situation. An unfortunate string of recent events combined with chronic mismanagement has created a potentially mortal threat to Pakistan’s political system. “There are three crises intersecting at the moment in Pakistan: an economic crisis, a political crisis and a security crisis that has grown since the fall of Kabul,” he said.
Pakistan’s foreign reserves have reportedly dwindled to a mere $3.7 billion, barely enough for a few weeks of energy imports to keep its cities and businesses running, while its public debt has grown to a staggering $270 billion. Pakistan has been hard-hit by the war in Ukraine, which, along with other developing countries forced it into a bidding war over scarce natural gas that it has been unable to afford. Meanwhile, there are signs that economic pressure will impact most basic needs. The electricity generation capacity of Pakistan is significantly dependent on the continued import of fuel. One can imagine what would happen if we start to see frequent and long power breakdowns and outages, or even shortages of fuel for transportation, at a time when the country is also dealing with 40 percent inflation. The compounding crisis particularly serious for a debt-ridden economy and a kleptocratic elite, have been coming since long. While much of Asia has gradually become rich and stable over the past few decades, unfortunately Pakistan has remained poor, chaotic and volatile, mainly due to corruption, unstable political system and deepening economic uncertainty.
—The writer is Former Civil Servant and Consultant (ILO) & International Organisation for Migration.
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