WITH the start of the year 2022 Pakistan has been in the vicious grip of an economic crisis and political turmoil along with the damaging effects of catastrophic flooding as a consequence of climate change. Economically we had to deal with crippling inflation, sliding currency and pretty low foreign currency reserves. Increasing prices of petroleum products, electricity, and gas along with food items the country’s economic woes have today reached an alarming and deeply worrying stage. The foreign exchange reserves with the state bank are barely enough to cover two months of imports and exports are not increasing at all, foreign remittances are down and there is no progress in the foreign direct investments except of promises from Saudi Arabia and some gulf states.
Millions of young educated people are jobless and around 90 million people are living below the poverty line. During the month of April this year prices of petroleum products were raised twice resulting in the increase of prices of food stuff and transportation costs putting a severe strain on the budget of the people groaning under the strain of crippling cost of living. The country now is in serious danger of an economic collapse and hoping for another IMF package to bail them out of this economic crisis. The country has to pay back around 40 billion dollars during the year 2024-2025 which will be a really uphill task in the present economic scenario.
At the international level the economy has felt the tremendous strains of the conflict in the middle East mainly the Israel-Gaza clash and the Israel Iran conflict and also the ongoing Russian Ukraine war in Europe but these are areas that are beyond the control of our economic managers but there are plenty of steps that the govt. can initiate to prevent a complete economic meltdown and collapse of the economy. We have a pool of talented, qualified, experienced and patriotic economics and fiscal managers to prevent the approaching financial meltdown.
Fortunately some steps have been taken in the right direction such as the appointment of a senior professional as the Finance Minister and the new governor of the State Bank. The new team of financial managers has the capacity and the talent to pull the country out of the present economic predicament. What a relief that the old team of the PDM regime headed by Ishaq Dar is not in the driving seat.
The causes of our economic woes are many but the main problems are corruption, nepotism and the shamefully low collection of income tax and so the immediate need is to enhance the tax base and eradicate corruption from the tax collecting agencies. With the new finance Minister heading the team of economic managers there is every hope that he will be able to turn around the sluggish economy.
The Finance Minister is renowned for working his magic during his tenure as the head of a commercial bank that he managed to pull back from the brink of bankruptcy. He is an internationally renowned and respected economist with an impressive academic and professional record so there is no reason why he can’t deliver. The fear is that the present system is rotten to the core and as such the new economic managers have an uphill task before them. There is a direct link between governance, politics and economy and as long as the country suffers from the chronic ills of political upheavals, and chaos it may not be possible to bring about any improvement in the economy.
Many countries in recent history have managed to come out of severe economic crisis such as the one faced by Pakistan. We can learn a lot from the recent example of Sri Lanka and this could possibly be an opportunity for Pakistan to correct the deep rooted malice that has thwarted the economic progress of the country since long. First and foremost is the need to improve the human resources of the country. Millions of school children are out of school and around seven percent of children die before reaching the age of five. Nutrition and health have to be improved and then education facilities to be provided to the poorer segments of society.
Pakistan’s current economic crisis is primarily caused by its external debt, which amounts to $126.3 billion. The country owes this debt to a wide range of creditors, including multilateral organizations, Paris Club nations, private and commercial lenders, and China. The growth of this debt load can be attributed to several factors such as excessive borrowing, slow growth, weak exports, and currency depreciation. Pakistan is currently facing a decline in the purchasing power of its populace and an increase in poverty due to a record-breaking inflation rate of over 25%. The rising costs of food, fuel, electricity, and imported goods are the primary causes of this inflation. The government’s expansionary fiscal and monetary policies, which were implemented to boost the economy in the face of the COVID-19 pandemic, have further exacerbated the inflationary pressures.
Pakistan is currently dealing with a persistent energy crisis that has seriously hampered its ability to produce goods and expand its economy. The country relies heavily on imported petrol and oil, which are expensive and prone to price volatility. Unfortunately, poor management, corruption, and a lack of investment in renewable energy sources have resulted in insufficient and inefficient domestic energy production. As a result, Pakistan frequently experiences load shedding and power outages, which negatively affect millions of homes and businesses.
The country’s GDP has decreased by up to 4% recently as a result of energy shortages. It is essential to put structural changes into place to address the underlying causes of Pakistan’s economic problems. To lower inflation, the budget deficit, and the national debt, the government should implement responsible fiscal and monetary policies. To increase revenue production and boost efficiency, it is essential to improve tax collection and expense management.
Additionally, expanding export markets and encouraging the export sector can increase foreign exchange revenues. Reduced reliance on imported oil and gas can be achieved by making investments in the energy sector and the development of renewable energy.
—The writer is Professor of History, based in Islamabad.
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