EVERY time I venture to write about my beautiful country, I become sad and depressed because there is hardly any reason to be happy and rejoice. The level of crisis always shows an upwards trend and the mounting debt sky-rocketing. The quality of life is going down with each day passing and so does the attitude and behaviour of the people due to rising and persistent cost of living which is making the task of meeting both ends together for every individual and every family an enormous challenge. At the same time another social monster in the shape of in-equality of income due to flawed policies and unwarranted patronage has created a distinct class of rich and wealthy (with all the power and almost zero accountability) who think of themselves above the law and enjoy perks and facilities at the expense of common man. They hardly pay the taxes while earning millions whereas a poor employee earning less than a fraction of their income, is made to pay tax at source.
Pakistan is also blamed for lack of political will to break the grip of powerful vested interest groups. A recent United Nations report suggests that an elite group of citizens in Pakistan receive economic privileges of around $17.4 billion in the form of tax breaks and preferential access to public capital Having adopted such rich- friendly and poor-squeezing policies, the economic, social and political crisis along with corruption in Pakistan are now deep-rooted and perhaps come to stay unless a complete overhaul of the entire system with a dedicated, sincere and honest team of leaders, come to our rescue. The current economic crisis is primarily attributed to Pakistan’s short-sighted policy decision leading to extensive spending on non-developmental and economically enviable projects. Economic mismanagement and financing of futile infrastructure projects like Gwadar-Kashgar Railway line project through long-term debt instruments, and relying massively on external borrowing rather than from domestic institutions added to its troubles. Roll out of the China–Pakistan Economic Corridor (CPEC) increased the debt burden, opening the doors of ever-increasing external loans. Notably, CPEC created a Chinese debt of US$ 64 billion on Pakistan which was originally valued at US$47 billion during 2014.
The persistent fall in the Pakistani Rupee against the US Dollar has further contributed to the ballooning external debt. Falling confidence coupled with low ranking by international rating agencies and grey listing of Pakistan in Financial Action Task Force (FATF) kept foreign investors away. The State Bank of Pakistan data suggests that in the past 10 years, Foreign Direct Investment (FDI) inflows into Pakistan never exceeded 1percent of GDP. The vicious cycle of seeking fresh loans and repaying old ones has led Pakistan into the notorious ‘debt trap’. Moreover, due to the reluctance of the international community in extending loans to Pakistan, the country was forced to resort mainly to China and Saudi Arabia and thus making it vulnerable to their complex terms.
Pakistan has been struggling with a mounting trade deficit driven by its ever-increasing import bills and falling exports. Pakistan’s trade deficit touched its all-time high of US$37.7 billion in FY 2018. The first five months of the current fiscal year saw a rise of more than 117.25 percent in the trade deficit. In February 2022, ADB reported that Pakistan has one of the lowest trade-to-GDP ratios in the world. The outbreak of the Covid-19 pandemic further deteriorated the situation. Major exporting items such as cement, textiles, leather, and sport goods merely had any buyer during the pandemic. The nature of Pakistan’s trade basket that imports essential items and exports non-essential items has played a large role in widening the gap between exports and imports. Pakistan imports mostly items of domestic consumption.
A widening trade deficit and falling investment has led to a sharp fall in the foreign exchange reserves in Pakistan. The foreign exchange reserves fell by 1.97 percent in the second week of November to US$23.550 billion, compared to US$24.025 billion in its previous week. The reserves of commercial banks also declined to US$6.605 billion from US$6.699 billion in November 2021. The depreciation of the Pakistani Rupee against the US Dollar reduced the value of the existing reserves.
Inflation in Pakistan touched its highest level in November 2021. This is primarily because of the global rise in crude oil prices leading to costlier freight charges. Importantly, Pakistan is a net importer of essential food items such as pulses, wheat, edible oil, and sugar. Notably, Pakistan’s food imports consist of around 16 percent of its gross imports. Pakistan has been affected by the global rise in the food prices. Poor harvest in the last sowing season is also blamed for high food inflation. Sharp increases in the energy prices during the last few years have created immense inflationary pressure and burdened the common citizen with additional expenditure.
Experts suggest that correcting imbalances in the economy through external borrowing is not a sustainable solution and, hence, for Pakistan there is a need to bring structural economic reforms in its monetary and fiscal policy in line with international best practices. Economists are of the view that curbing unviable development projects, reducing import bills, and relying more on its domestic firms would possibly help Pakistan to avoid deepening the crisis further.
Pakistan’s stability increasingly depends on the outcome of an ever-worsening economic crisis. Amid skyrocketing inflation, political conflict and the resultant uncertainty, the country is facing the risk of a default due to its massive external debt obligations. This burden has been exacerbated by the derailment of the $6.5 billion International Monetary Fund (IMF) program Pakistan entered into, as the international lender is unsatisfied with Pakistan’s commitment to reform and ability to arrange for funds to meet external financing requirements. Pakistan’s official foreign exchange reserves are hovering around $4 billion, which is insufficient to finance even a one-month of the country’s import bill. The situation is already alarming and grim and needs top priority in finding a solution and removing the irritants to pave way for stability and sustainability.
—The writer is Former Civil Servant and Consultant (ILO) & International Organisation for Migration.
(mughal_rashid@hotmail.com)
