PAKISTAN’s crashing stock market in the wake of former prime minister Nawaz Sharif’s conviction on corruption-related charges should have presented an opportunity for bargain-hunters to prepare for attractive deals before a future recovery.
But in the midst of rapidly built up anxieties ahead of this years’ parliamentary elections, fear of the unknown has surrounded some of the largest business houses across Pakistan. For the moment, many businessmen are eager to counsel a ‘wait and see’ view leading up to a new government settling in. The modalities of dealing with the most formidable economic crisis to ever face Pakistan will then begin unfolding and possibly helping to lift part of the prevailing uncertainty.
“Once a new government comes in, a reality check will have to be put across. What I see is a constant belt tightening, a period of austerity, possibly leading to lower [economic] growth rates,” says the head of a Karachi-based business group with investments in industry and commodity trade. His take on the economy as seen through the prism of Pakistan’s businesses highlights a wider challenge.
Nowhere in our history have we had our imports in dollar terms being more than double our exports. Senior government official in Islamabad
After five years of reckless spending under former prime minister Nawaz Sharif, who in turn inherited an economy in 2013 surrounded by significant challenges, the writing on the wall is hardly inspirational. Though Pakistan’s mainstream political parties are heading into elections with promises such as creating a large number of new jobs for low-income Pakistanis, the reality ahead is hardly encouraging. Once a new government is placed in office, discussions with global lenders — notably the International Monetary Fund (IMF) — will begin immediately for a new bail-out.
Pushed with the powerful reality of the present financial year (July 2018-June 2019) set to present Pakistan with a hefty bill of U$28 billion or so on the external front (the combined cost of debt repayments and current account deficit) and Pakistan’s foreign exchange reserves depleting rapidly, time is fast running out. But such an economic rescue will come with challenges like a forced scaling back of expenditure on public-sector projects and a push to curtail out-of-control imports. “Nowhere in our history have we had our imports in dollar terms being more than double our exports,” says a senior government official in Islamabad.
For businesses, the belt-tightening will force a nationwide drop in sales of items like cement, steel and other construction-related materials. Meanwhile, a cut in imports will hit a large network of businesses involved with the trade of imported items. The out-of-control surge in Pakistan’s imports has been justified by key members of former prime minister Sharif’s cabinet as an inevitable outcome of imports related to projects under the China-Pakistan Economic Corridor (CPEC). Yet, that is just not the whole story.
One top businessman in Lahore notes the ambitious Orange Line train project in Sharif’s home city as a project that deserves closer scrutiny. Though the Orange Line has been widely touted by the PML-N as an important new landmark, questions are now raised over the absence of an independent and credible mechanism to verify the quality of its construction as well as the extent that it was needed in the first place.
Those questions have sharpened in the wake of the collapse of a recently built road in central Lahore after recent monsoon rains. The irony linked to the collapse is evident nowhere more than Lahore’s Walled City where construction dating back 500 to 800 years under the Mughuls, the Sikhs and the British still remains intact.
For businessmen in the city who were once united in supporting the Sharif family, the outlook for Pakistan’s businesses, notably the risk from surging imports, is evident nowhere more than across affluent neighbourhoods of the city. “We have Audis, Mercs (Mercedes Benz) and (Toyota) Land Cruisers being driven all around. May I ask how we will keep up with such a lifestyle and also cope with out-of-control imports and our falling reserves?” asks a member of the Lahore Chamber of Commerce and Industry.
In a recent visit to an upper-class supermarket, the Lahore chamber businessman pointed towards well-stocked counters of imported fruit and crockery as evidence of “a very reckless” economic policy from recent years. Other businessmen note that the economic legacy of the past five years has left behind bigger challenges than the former prime minister’s claim of the downward journey having begun after his ouster in July 2017.
Meanwhile, a new way of life is set to surround Pakistanis with an interest in onshore or offshore foreign currency accounts as the country prepares to cope with tough conditions slapped down by the Paris-based Financial Action Task Force (FATF). Though the formal decision was delivered earlier in July, Pakistan was notified informally under former prime minister Shahid Khaqan Abbasi of the country’s inevitable return to the grey list. Going forward, the central bank and the finance ministry in Islamabad will together have to enforce tougher compliance-related regulations by Pakistani banks while the next prime minister and the Cabinet will have to enforce tougher restrictions on groups suspected of links to global terrorism. A failure to change course in compliance with international pressure will raise the risk of pushing Pakistan in to FATF’s black list to join heavily sanctioned states like Iran and North Korea.
These are formidable challenges whose future will set the pace for choices to be made by Pakistan’s business houses after the elections. “No one expects a rapid turnaround for the economy. In fact, there will be pain and possibly unprecedented economic pain,” concludes the head of a Karachi-based business house who shares one significant fear: “The public may decide that the culprits are the new government. People might soon forget the mess we have inherited from all that went wrong under Nawaz Sharif,” he warns.
Published in Dawn, July 16th, 2018