IF someone willingly and deliberately wishes to take a ride in a boat, knowing it has multiple holes and heads to the high sea, we all know the logical outcome and end result. In other words, it will be construed either as a suicide mission or an adventure, which is most likely bound to fail. Of course, with skilful manoeuvring and the courage of the Captain, coupled with his knowledge and experience, he can bring the boat to the shore, but the chances of that are slim, given the conditions the boat is in.
The situation in our beloved country—both economically and politically—is not different from that boat in high seas. We have serious economic and political challenges which have perhaps not been addressed timely and prudently, with the result that we have piled up enormous debt and have unfortunately created a deep polarization in our society. Pakistan has often been termed a persistently failing state; (that is, a state that exhibits many of the features of a ‘failed state) by India and the western press and media, but Pakistan has thwarted their negative perception and stood firm against all evil designs. It has neither collapsed nor disintegrated, much to the displeasure of India and the West.
Let’s ponder over Pakistan’s trajectory since independence. Despite abundant potential, we’ve faltered while nations like Vietnam, Cambodia, and South Korea have surged ahead economically. The absence of good governance, honest leadership, and effective institutions has hindered our progress. Unlike these successful models, Pakistan grapples with rampant corruption, political instability, and a lack of rule of law. This has led to deteriorating living conditions and increasing poverty levels. It’s a sobering tale of missed opportunities and systemic shortcomings that demand urgent attention and reform. As we confront this reality, we must strive to address these challenges with determination and resolve, steering our nation toward a brighter future.
Poor governance and low productivity per capita in comparison with other low to middle-income developing countries have contributed to balance of payment crisis, due to which the country is unable to earn enough foreign exchange to fund the imports. Pakistan’s economic crisis at present is the biggest and alarming since its independence. According to one estimate, Pakistan has doubled its debt roughly every five years over the last 25-year period. Starting from a debt of Rs. 3.06 trillion (US$11 billion) in 1999, the debt stood at Rs. 62.5 trillion (US$220 billion) at the end of 2022. While the debt grew at around 14 percent per year on average, the GDP was growing at only 3 percent per year on average. This led to an unsustainable debt burden. In the fiscal year 2022–23, the debt servicing obligations of Rs. 5.2 trillion exceed the entire federal government revenue.
In 2022, Pakistan experienced a trifecta of challenges, as political unrest, an economic crisis, and destructive floods gripped the nation. Economically, the country is presently grappling with severe inflation, a declining currency, and critically low foreign reserves, posing significant concerns for its financial stability. The government also had to lift the cap on fuel prices – a condition for advancing the long-stalled bailout deal with the IMF along with condition to raise electricity prices, ramp up tax collection and make sizable budget cuts in imports.
Inflation in Pakistan rose to 21.3% in June, the highest since December 2008 when inflation stood at 23.3%. A timely loan of $2.3 billion from a Chinese consortium of banks to the State Bank of Pakistan averted the grim economic situation at that time. The 2022 floods in summer caused over $30 billion dollars in economic losses in Pakistan. At the end of March 2022, the State Bank of Pakistan’s reserves stood at $11.425bn, but they gradually tanked to an almost four-year low of $6.715bn in December, equal to just five weeks of merchandise imports. The consistent depreciation of the Rupee in such circumstances was logical conclusion, deepening the economic crisis further. Presently it stands close to Rs.300 to a dollar.
The World Bank further recorded the Consumer price index (CPI) for food items on a year on year basis at 45.1%, the second highest in South Asia after Sri Lanka. The (CPI) raced to 35.4 per cent in the highest annual rise in prices on record, driven mainly by skyrocketing costs of food, electricity, beverage, and transport and is expected to rise further in the coming months. The World Bank projected about 4 million Pakistanis falling below the lower middle-income ($3.6/day ) poverty line amid economic growth plummeting to just 0.4% against a target of 5pc. In May 2023, Pakistan’s inflation rate reached 38%, surpassing Sri Lanka to become the highest country in Asia. The United Nations also reported that Pakistan’s economy will face tough challenges in 2024 with modest GDP growth.
Situation in Pakistan remains chaotic after the 2024 elections, and economic data shows that economic crisis will continue. According to the Bureau of Statistics, the inflation rate stood at more than 29% in January. Pakistan also has to manage roughly $30 billion in annual external debt obligations, as its foreign currency reserves continue to fluctuate. As of Feb. 9, total liquid foreign reserves stood at $13.15 billion, having previously fallen to just $4.1 billion in June 2023. According to State Bank of Pakistan data, Pakistan requires $6.1 billion for debt servicing before the end of the fiscal year (June 30). Its current account deficit stands at $269 million, which could further exacerbate the projected deficit of $6 billion that the government expects, thereby complicating ability to fulfil its debt obligations.
—The writer is Former Civil Servant and Consultant (ILO) & International Organisation for Migration.
Email: mughal_rashid@hotmail.com
