M Fazal Elahi
Ascension to the citadel of power may not have been as difficult for the incumbent coalition government of PM Imran Khan as tackling the draconian economic and foreign relations challenges would be, now that it has in effect taken the reigns of the country in its hands. I am sure this realization must have already started boggling the minds of PM Khan, his economic team, and his coalition partners. They must have already comprehended, and wisely so, that the economic challenges confronting Pakistan are formidable and phenomenal. To better appreciate the gravity of the country’s economic predicaments we would need to enumerate and discuss these problems one by one:
Pakistan’s external debt: External borrowing is an essential phenomenon which all underdeveloped and developing nations of the world are compelled to resort to attain its developmental goals. To be more specific, inadequate indigenous financial resources make external borrowing compulsive for the underdeveloped and developing countries. As reported, Pakistan’s total external debt and liabilities (EDL) have peaked to a shockingly high level of $91.761 billion till end March 2018 against $ 60.9 billion in June 2013. This, according to available official data, means that the EDL increased by $30 billion in the last five years. The overall public debt including domestic, external and liabilities in rupee term have touched Rs28, 297 billion till March 31, 2018. The IMF has forecast that Pakistan’s external debt and liabilities could peak to $144 billion in the next five years from $93 billion in fiscal 2018.
Pakistan’s Domestic debt: There has been an unprecedented increase in Pakistan’s domestic debt. According to the State Bank of Pakistan the provisional total of domestic debt till December 2017 stood at 15.4 trillion rupees. In view of the foregoing, it would rather be logical to assume that the government borrowing during January and February 2018 must have resulted in increasing the domestic debt to more than 16 trillion rupees, which perhaps was more than the total annual budget outlay for the year. This assumption could be all the more credible given the severe resource constraints of the previous government fuelled by the reluctance of multilaterals and bilaterals to extend programme loans (budget support) due to their lack of confidence in the government.
External and internal debt servicing: Shocking, yet again. Pakistan, it is reported, is paying over Rs.1,620 billion as interest against the estimates of borrowing loans from external and internal sources. Documents reveal that Pakistan will pay an estimated amount of Rs1,391 billion as interest to domestic banks and Rs229 billion to foreign institutions in 2018-19. In addition to this, Pakistan has to repay an amount of over Rs. 21,905 billion to domestic and foreign lenders in the upcoming years. In $ terms it is reported that on an average Pakistan is paying over $ 4.5 billion annually on external debt servicing. An alarming and worrisome situation indeed! Had frugality and dexterous planning been the cornerstone of the policy of successive governments Pakistan wouldn’t have had to bear this phenomenal burden of external and domestic debt.
Pakistan’s current account deficit: Pakistan’s current account deficit widened to $18 billion or 5.7 percent of gross domestic product (GDP) during the last fiscal year of 2017/18, putting rupee at risk of a further big fall and fanning fears about the sustainability of the economic growth. The State Bank of Pakistan (SBP) has said the current account deficit amounted to $12.6 billion or 4.1 percent of GDP in FY-2017. According to eminent economist Dr. Ashfaque Hassan Khan, Pakistan may have to go to the International Monetary Fund (IMF) to obtain a fresh bailout package in late August or in early September. Dr. Khan said his calculation for the current account deficit for the current fiscal year is $21.2 billion.
Pakistan’s trade deficit: Reuters reported that Pakistan’s import bill peaked to $5.8 billion in May 2018; emphasizing that pressure on foreign currency reserves is expected to continue. This, the agency said, broke the record registered four months ago (January 2018), as all administrative measures to contain imports seem to have backfired. Cumulatively, imports increased to $55.2 billion in eleven months, reported the Pakistan Bureau of Statistics (PBS). The import bill of $5.81 billion in May was the highest in the country’s history.
Pakistan’s foreign exchange reserves: According to the State Bank of Pakistan’s (SBP) report published in some of the leading dailies of the country recently, Pakistan’s total liquid foreign reserves stood at $ 16.713 billion. As stated earlier, in May 2018 the monthly import bill of the country jumped to a record $5.8 billion, perhaps the highest in the country’s history. The situation must have become more critical in the following months of the ongoing fiscal year. If that is true then the current foreign exchange reserves would be barely enough to meet the country’s import needs for three months. Pakistan thus needs to drastically cut down its import needs and sufficiently increase its exports.
The above data published in some of the leading national English dailies of the country and on the website of the State Bank of Pakistan (SBP), from time to time, are perturbing enough to send shockwaves down the spines of not only the country’s economic managers and the government in saddles, but also every educated and concerned citizen of Pakistan. In the backdrop of the extremely dismal state of affairs on the economic front, judicious economic planning and audaciously stringent fiscal measures will have to be taken by the incumbent government. The measures that need to be taken would unequivocally be extremely tough and, therefore, unpopular. But do we have a choice? No we don’t. The sword of the Financial Action Task Force (FATAF) is already hanging on our neck. Pakistan has already been ‘grey listed’ by this inter-governmental body. It is being feared that Pakistan may soon be black listed. If that happens, the ramifications would unambiguously be very serious for Pakistan. To add a pinch of salt to the already extremely critical economic predicaments of Pakistan, the US President Donald Trump has not lagged behind. He has, for the present, warned the International Monetary Fund (IMF) to desist from bailing out Pakistan from its profound economic problems. If the US further tightens the noose around Pakistan’s neck, things would indeed become distressing for Pakistan.
— The writer is freelance columnist based in Islamabad.