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IT took a crisis to get the government to focus on reality, but it finally happened.
The government’s announcement of seeking support from the IMF to help shore up the deteriorating balance of payments has triggered a frenzied debate in the country about the merits, and the underlying necessity, of the move, as well as unleashing feverish market sentiments.
Monday saw a rout on the trade floor, and on Tuesday, the panic spread to the currency markets as the exchange rate plunged by more than anyone can remember in recent years.
A Rs10 devaluation in one day is intense, even by Pakistani standards, and sentiments are set to be stirred further once the price effects of this adjustment work their way through the economy.
Read more: Devaluation pushes up total debt by Rs900bn
On top of this, further pressures have built up in the power sector and the public-sector enterprises and their finances.
The turmoil can now spread beyond the financial markets to the real sector if urgent action is not undertaken.
Almost two months after Prime Minister Imran Khan was sworn in, reality is now knocking hard on the doors of the government, and the country as well.
The markets are impervious to emotional appeals, and they cannot be inspired or otherwise persuaded, other than through the cold inducements of gain and loss.
This is a reality every government faces, and the PTI cannot expect to be the exception.
The minister of state for revenue hit the right note when he said that the challenge for his government is to “use the space offered by the bailout to undertake much delayed structural reforms”, which is how such bailouts are meant to be used.
The minister is right to identify the space as an opportunity to undertake the right reforms, but all governments have made this claim before him and the real challenge will be to keep to this goal.
The biggest enemy now is optics. What needs to be done is comparatively straightforward, and the best path forward can be mapped out quickly as well since the PTI leadership has no shortage of competent people to turn to for advice.
Perceptions, or optics, can derail the whole enterprise in a number of ways. One is if optics becomes the only priority of the government at the top.
A hint of this appeared on Tuesday night when news arrived of the appointment of a new spokesperson for economic affairs, who is known for his focus on optics than the facts.
A further hint was provided when the prime minister summoned his media team for a meeting on how to manage the perceptual fallout from the turmoil gripping the financial markets.
What need to be managed urgently right now are the fundamentals, not the perceptions. That is where the prime minister’s focus is immediately required.
Published in Dawn, October 10th, 2018
Comments (58) Closed
Being a responsible PM is not like playing ball.
An honest advice to Imran Khan....Thank you DAWN, very much indeed.
Bad behavior has a price.
They sold words before election and now want to sell more words. The market is saturated with words and the demand has decreased. Too many words will bring this commodity a hard sell and soon the public will vomit that out.
There is no escape but to seek bail out package from IMF. The govt has scant options. But what if the loan amount received and spent unwisely as done by previous governments. Then there will be more economic woes.
First the government must take resolute steps to stop misappropriation of fund. Cut the size of the government and do right sizing. You cannot sustain with overload and top heavy. Stop injecting fund into government owned commercial ventures and privatise the same. Gas and power thieves be caught and punished. Reduce the line losses.
Without taking bold steps, financial health will not improve.
It is about time for the PTI government to ask the Pakistani Expats to keep the fraction of their wealth, as long as they can, in their Pakistan's Dollar Bank Account(s) to rebuild the Pakistan's Foreign Exchange Reserves.
Better Late Than Never!
Pakistan Do Need Pakistanis Dollars Even For A Short Period Of Time And the Time is Now!
By Loaning a small fraction of their wealth, Pakistanis abroad can provide a major relief to the Poor people of Pakistan.
Every Penny Adds Up Please Do Your Share Make Pakistan Prosperous For Your Future Generations
@Dr. Zahid USA Countries are run on fundamentals (Taxes and expenditure) not on alms.
I rarely agree with Dawn and/or Mr. Zahid Hussain, but on the issue of using the space offered by the IMF bailout to undertake much delayed structural reforms there is no disagreement. This is a no-brainer. Anything else would be repeating the mistakes of the earlier governments.
Immediate reforms in Banking, Tax Collection, and Judicial System are required.
Bring in capital punishment for Money Laundering, Corruption and Living Beyond Means.
Clearly it is the IMF's decision whether Pakistan is given this IMF loan or not.
The minister of state for revenue should have said that the challenge for his government is to use the space offered by the bailout to undertake the collection of taxes. Otherwise the bailout will be of little use and Pakistan, will like Greece, be a perpetual debtor nation. The rest of the stories about Pakistan's economic future are smoke and mirrors. The CPEC may not revitalize the economy for another 15 years, and meanwhile all loans must be repaid.
@Mehboob Ali Lalani ..... I like your thinking. Unfortunately you are not the person in charge.
Diaspora can only give a sigh of relief, if otherwise it will only add credits from big giants, economy's current condition is because of the previous loans which are mere addiction of injection, would pose damaging effect of debt trap (principle amount +huge interests)
This financial side of the equation has no 'perception' factor in it. At least It should not have one. It is only the unadulterated financial reality that matters. It one knows the reality, however ugly it may be, one can do something about it. What others think, the 'perception', should it become controlling factor, all game will be lost which nobody can afford to lose at this point in time. It has to be for the real change with lasting results for better. So watch out.
Lame excuses, we got this from previous government, where is your policy,
who is supporting IK, Now see the consequences
The problem is that when the previous governments had been deluding the nation with optic and perceptions for decades, the whole nation including the wise advisers were sleeping and now when new government is trying to mend the damage nobody is patient enough to wait. The sleeping advisers have suddenly woke up to pour down their every precious bit of advise hurriedly so that everything change within days.
I don’t mind Imran khan going to IMF because the money will be spent where it meant to be unlike the previous governments
The stock market fallout has more to do with the red on Wall St and major stock exchanges around the world in recent days.
What are the structural reforms? Clarification should be noticed
Austerity and austerity - no fake development projects.
@Kamran Arain
Dear Kamran,
Please do not compare apples with oranges, we are now in a severe financial crisis and are discussing how to Stop the free fall of Rupee value against Dollar swiftly.
If you have a better idea to resolve this problem, please share it with us. We are very interested to know it.
Furthermore, we do not give alms to our Motherland. It is our duty to strengthen it and from now on let's call Loan a Loan.
Through all this temporary turmoil, the credibility of PM Khan remains unquestionable. The current turmoil only exposes bad, incompetent and corrupt governance of 4 decades by the ppp and the N league
@Dr. Zahid USA There is no body stopping you to that. I invested heavily in Pakistan and I am biting the bullet now on this favourite PTI's arrival. My wealth decreased as markets came down and then because of PKR devaluation. Its a double whammy. I believe if they had let Ishaq Dar stay, he would have managed it much better. it was a simple case of rescheduling some big loans and then increasing revenues. He has been doing it much better than Asad Umar.
What was the fun in making a New Pakistan an avalanche of crushing hardships for the nation? Are we fit as a nation to decide our destiny always on empty slogans?
Market doesn't work on emotions. How aptly put. I think the same should apply to the governance of the nation if it wants to prosper .
@javed Looks like reality has still not hit you
Four decades of mismanagement with all the corrupt practices swept under the carpet which is now out in the open. No need to blame PTI for the stark reality it was the previous administrations that had loot and plunder policies that have led us to the status quo!
IMF warns Pakistan against ‘excessive loans’ from China --- (Dawn, 10 October).
The only way to pay foreign debt is by increasing exports and decreasing imports. We need to help exporters. Use our own natural resources. Increase import duty on luxury goods. Never borrow large amounts again. Interest based debt is slavery. If we are a Muslim nation we should not use an interest based system of lending.
I hope imran khan is the man he claims to be. But I have my doubts. His track record is already quite bad. We need a leader who will make the right decisions for the nation not one that only thinks about votes.
Lets have the truth for once - the country was financially mis-managed since independence. Budget expenditure was diverted towards defense instead of development and uplifting the society. We all pay for mistakes of the past, and the least we can do now is to correct the present situation so that our future does not suffer as well.
@Jim Manloe 'simple case'?
IK Needs public suggestions how to run a successful Government. Please advise.
Isn't everything contingent to IMF actually agreeing to provide the loan on interest, by that time if the circular debt and currency will be in free fall and thus would the loans cover all the required amount (the new loan is being requested to pay back previous loans)
IK should hire an Economist like Late Narasimha Rao had hired Manmohan Singh as Finance Minister in 1992. Professionals can apply proper thought and pull out country from economic crisis. I would even suggest IK should approach professionals in India if needed. This is an existential crisis for Pakistan and all options should be used.
When most of the money goes in trying to hurt the neighbors, what else can we expect.
Sir, your editorial is very restrained compared to the disaster this inexperienced Teflon PM and his government brought Pakistan to. Still the PM wants to band aid the facts and hide behind media jugglery. It will prove very costly for him.
What we require on the post of revenue minister is a financial wizard, not someone who has an experience of running a multinational company. Countries can never be run like trade entities.
It is simple Mr. prime minister,cut down the imports of luxury consumer items, live within your means (imports same as exports). when are you going to take concrete action on corruption? Until you take action, it is all slogans and politics. Make right decisions, little message to the budget is not enough, major surgery is needed, the patient is dying, fake medicine will speed up death. Even Chinese acupuncture(CPEC) is not enough, only honest self help will work.
It hasn't yet. Can't trust this govt until they make formal request
why no one talks about stopping imports? India Solve the problem in 1980 now their export is 10 times bigger than us and import is limited to need full items not the luxurious like us, we import even shoes and fruits
He can signal that he is focusing on realities rather than optics from now on by sacking Fawad Chaudhry.
I am very angry for what the previous governments havre done to the country. I feel the court should jail all the high rank and file of all three previous governments and perhaps as part of the collective punishment allow the citizens to whip them and their family members in public until they return the loot.
PM going on about not going to IMF doesn't help !
@javed Many of the corrupt have properties in the West, and most Western countries have laws against cooperation in death penalty cases.
Personally, I don't even want the corrupt people to go to jail and be an ongoing burden on the taxpayer. Better to confiscate all their assets, in Pakistan and abroad.
@Dr. Zahid USA The top richest families in Pakistan, who don't pay proper income taxes, can buy ten expats like us with one morning's profit.
There is plenty of money within Pakistan itself, but the tax office doesn't have the guts to go after the absconders.
@Kamran Arain Well Said.
IK finance minster has generated distorted optics! Time to rectify it, get a professional!
The most important will never happen In three years time IK will be thought of as a lost cause
@AW “The current turmoil only exposes bad, incompetent and corrupt governance of 4 decades by the ppp and the N league” 4 decades? So you are including the time that Zia and Musharraf ruled as part of PPP-PML-N rule?
@Tariq, Lahore “Four decades of mismanagement with all the corrupt practices swept under the carpet which is now out in the open” Last 4 decades include 10 years of Musharraf and 9 years of Zia. So do not put all of this on PPP and PML-N
India, Pakistan & Bangladesh should form a confederation with greater autonomy.. All the three units will remain independent except for foreign policy, defence. They can help each other financially in hour of need with their common currency.
Why go to IMF, when all weather friend China is there.
All this problems are created by the PMLN living out of their means PTI has to work hard to put it right.
If reforms are implemented sincerely and honestly, people understand and tolerate problems caused by structural changes. This is the experience in India.
Dear Pakistani Friends,
Pakistan is in dire need of funding for economic stability and desperately looking for someone to bail it out . But I am surprised to see that Iron brother which sweeter than Honey and higher than Himalayas is no where on the scene. Neither the wealthy so called Muslim Umma has come to the rescue of land of pure. So sad! Does not this proves , Pakistan is living in fools paradise since last 70 yrs. Even when Pakistan was reeling under severe flood few years back the western country came up with chunk of aid and China gave only a meagre amount. A country bestowed with fertile land , healthy and hard working people has become a failed state because of wrong policy of feudal leadership. An imaginary fear and hate of India has been spread like cancer in mindset of innocent pakistani people. all these just to strengthen feudal system and grip of feudal lords on power structure.
@Dr. Zahid USA Time is past for all happy talk. Microloans from diaspora, people raising penny funds to build dams - these are signs of hubris that eclipse hard facts and hardworking ahead. Political will to do the right things is the need of the hour. Not happy talk.