FOR many months now, there have been warnings that the health of the country’s external sector is deteriorating. These have been met with assurances by the government that overall, as a proportion of GDP, the level of external debt remains manageable and the increasing current account deficit is easily compensated for by other inflows, real and projected. Now the chorus of concerned voices is becoming louder, and a new stream of data is painting an increasingly worrisome picture. Foreign exchange reserves are on an accelerating decline, falling almost $3bn in the past six months, while the trade deficit has hit a record high in the same period. Some of this, we are told, is due to CPEC-related imports, which once activated will breathe new vitality into the economy. This assurance would be easier to swallow if we had better information about the outflows that will also be activated once these projects are commissioned. But on that front the government is holding its silence, so much so that the State Bank of Pakistan, the custodian of the country’s reserves, cannot make adequate projections to determine the quantum of these outflows.

The situation is nowhere near emergency levels yet and talk of an immediate approach to the IMF is hyperbole. But give it another year or two, just past the elections, and there can be little doubt that without taking strong corrective measures, that is where the present trajectory is taking us. If so, it would be a repeat of an old pattern, where an incoming government secures an IMF facility, spends its years in office bringing the broad macroeconomic framework within manageable limits, then sits back to enjoy the ride all the way down to bailout levels. With all the noise of ‘game-changing’ projects to transform the economy, if the PML-N government ends up repeating this story all over again, it will be the end of whatever scraps of credibility it has left. Mega projects do not equal economic management, and sustainability is not found at the end of repeated trips to China for increased borrowing. The short-term debts being racked up now to keep the reserves from plummeting will become due soon, and a verdict far more severe than any the party has had to face thus far will be served up when those obligations have to be met.

Published in Dawn, April 29th, 2017