Despite a record external account deficit of $17-18 billion and official central bank reserves of less than $10bn at the close of the fiscal year, one of Pakistan’s biggest economic challenges appears to be absent from the radar of mainstream parties vying to take up the reins of power later this month.
The PML-N that ruled the nation until May 31and the PPP that was in power until 2013 have unveiled their manifestos while the Pakistan Tehreek-i-Insaf (PTI) has announced its agenda for the first 100 days in power.
Apparently, whichever party comes into power will have to bank solely on the eternal wisdom of the bureaucracy to secure more and more external loans — some of them being part of the published budget documents — to meet international obligations.
These documents project inflows of foreign loans, bonds and grants close to $10bn for the current year that seem highly insufficient and will inevitably need support from the International Monetary Fund (IMF) that no party wants to talk about for political reasons. The PPP gives some hints though.
Strangely, the PML-N manifesto is almost silent about external account challenges. It does not say how it plans to address them even though it states in details its economic achievements of five years and promises for the next term. No party could have had a better idea about the actual situation on the ground than the PML-N because of incumbency.
Apparently, whichever party comes into power will have to bank solely on the eternal wisdom of the bureaucracy to secure more and more external loans
Nevertheless, it has explained its long-term plans for the external sector. For example, it plans to reduce input costs and rationalise import tariffs for industrial raw material, develop special economic zones to boost industrial production and grow exports by 15 per cent every year, rationalise the tariff structure to remove the anti-export bias and harness the potential of the China-Pakistan Economic Corridor (CPEC) to access international markets.
Conceptually, the PML-N is reviving its intentions to open debt markets for foreign remittances to increase returns on savings for overseas Pakistanis that it could not do in the last five years, but it has no plan to address immediate financing needs.
It also aspires to market abroad tourist destinations as hotspots for foreign direct investment (FDI) and convert Pakistan’s tourism industry into a $10bn one in five years to fuel economic growth and generate the much-needed foreign exchange.
The PTI’s agenda for the first 100 days refers to the subject as a critical challenge. But it does so in a passing remark without envisioned solutions while talking about all-time low exports, dangerously low reserves and an all-time high foreign debt. That’s all, no way-out proposed.
While a request to PTI’s economic tsar Asad Umar could not materialise, another senior member explained that the party would come out with a comprehensive plan of action for every sector within its first 100 days in power. Some of its senators are already working closely with the ministries of commerce and finance to understand the actual challenges and how the bureaucracy wants to lead their way in case the party gets a leading role in the next government.
The PPP appears to be taking a mature line albeit with its inherent political approach over the longer term. Blaming the previous government for leaving the country saddled with copious debt, alarming external trade and balance positions and a fictitious growth story pegged entirely on external investment coupled with white-elephant projects, the PPP sees no choice for the incoming government but to deal with the crisis.
PML-N offers no plan to address immediate financing needs despite fully knowing the gravity of the crisis. The PPP gives some hints
It promises to remain cool-headed and credible if voted to power so as to take painful measures while protecting the vulnerable from the fallout. It vouches to conduct an immediate, independent and rigorous assessment of the macroeconomic situation, including debt and external imbalances. It promises to create a working group of Pakistani experts and initiate contacts with key global economic players for the agreement on a home-grown plan for stabilisation.
The PPP also promises to seek out a basic national economic reform agenda for the medium term — a demand former finance minister Ishaq Dar kept making without any support from other parties, including the PPP. The PPP now also calls for reviewing all free trade agreements to secure a level playing field for Pakistani exports.
This state of affairs exists despite the fact that international rating agencies have already started looking at Pakistan’s fragile external and fiscal accounts negatively.
Last week, New York-based Fitch Ratings noted increasing risks to Pakistan’s external financing risks due to declining foreign exchange reserves and a widening current account deficit. The country is already on Fitch’s negative outlook since January.
“Further and considerable policy efforts would be required to stabilise the external position, and a new government has limited time to act after the July 25 elections as external debt obligations will pick up more rapidly in 2019,” it noted.
Earlier, Moody’s had downgraded Pakistan’s rating from stable to negative on June 20 on similar considerations of a heightened external vulnerability risk. It said reserves had fallen to low levels and would not be replenished over the next 12-18 months in the absence of significant capital inflows. “Low reserve adequacy threatens continued access to external financing at moderate costs, in turn potentially raising government liquidity risks,” it said.
Published in Dawn, The Business and Finance Weekly, July 9th, 2018