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On uncertain ground

Updated July 16, 2018

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“We could have grown the economy by 6.2 per cent instead of 5.8pc – the highest in 12 years – had a political crisis not hit us (because of the disqualification of Nawaz Sharif in a corruption enquiry at the beginning of the last fiscal year as well as sit-ins and protests later on),” the planning minister of the previous PML-N government, Ahsan Iqbal, had contended at the launch of its last Economic Survey of Pakistan in April this year.

His claim may have been exaggerated. But the fact remains that political instability that has pervaded the country for some time now is not really helping the economy that is already facing strong headwinds. What happened in Lahore last week when the former prime minister returned home to face a 10-year jail sentence ordered by an accountability judge in the Avenfield Properties case ahead of the July 25 election must have bolstered the negative perception of Pakistan worldwide.

Read: IMF concerned at Pakistan’s weakening economy

Election results are likely to complicate the situation as the public perception is growing that the country’s security establishment is backing a particular political party against other contenders for power at the centre and in Punjab. Doubts are now being publicly expressed over the fairness of the entire election process. Chances are the losing party would refuse to accept the poll results.

Political instability that has pervaded the country for some time now is not really helping the economy

However, political instability isn’t our only problem. The old scourge of terrorism is raising its head again just when we were made to believe that the menace had been taken care of. The recent terror attacks on election rallies in Balochistan and Khyber Pakhtunkhwa that killed more than 150 people have added to the public concerns over the future, both political and economic. On top of that, Pakistan was just put on the ‘grey list’ by the Financial Action Task Force (FATF) in a show of lack of trust in our efforts to help the world stop money laundering and terror financing.

What else does an economy need to crumble?

In a recent chat with Dawn during his election campaign in Narowal, Mr Iqbal had lamented that Bangladesh and India, which lagged far behind Pakistan in the 1990s, “have already overtaken us because of continuous disruptions in the democratic process here. Even Afghanistan looks more stable politically at the moment and (is) set to leave us behind in (the) economic field as well…”

His concerns about the economy are shared by businesspeople this correspondent spoke with on the condition of anonymity. “The recent developments on the political, security and economic fronts are very troubling,” a garment exporter insisted. “With the economy going under, ensuing political turmoil and terror attacks are the last things the country can afford right now.”

In its third quarterly report for the last fiscal year, the State Bank of Pakistan (SBP) wrote that Pakistan was unlikely to achieve the growth target of 6.2pc set for the present fiscal year because of increasing challenges to the economy. A few brokerage houses say growth could slow down to below 5pc from 5.8pc in the current financial year because of multiple challenges facing the economy.

Caretaker Finance Minister Shamshad Akhtar says public debt has risen to an unsustainable level of Rs24.5 trillion or 72pc of the total size of the economy — the highest level in 15 years — from 64pc five years ago. It’s likely to surge to 74pc of the gross domestic product (GDP) by the end of this year.

Public debt includes domestic debt of Rs16.5tr and external debt of Rs8tr. The PML-N government added Rs10.1tr to the stock because of the budget deficit, balance-of-payments requirements, currency depreciation, repayment needs and so on.

The trade deficit rose to just below $38 billion last year despite numerous administrative measures taken by the government to control imports. The surging trade deficit has put pressure on the nation’s foreign currency reserves that have dwindled to above $9bn or equal to the two-month import bill. Consequently, the balance-of-payments situation has worsened with the current account gap spiking to $16bn in the first 11 months of the last financial year from just over $12bn in the previous fiscal.

“Prospects of the country returning to the International Monetary Fund (IMF) for its help appear brighter today,” said a senior executive of a cement company. “Don’t you see the link between our economic woes, political instability and militant violence? Can we afford these things one more time? That is the question that our politicians, security establishment and technocrats will have to answer and build a consensus on before we can catch up with the rest of the world,” he added.

Published in Dawn, The Business and Finance Weekly, July 16th, 2018