Economy, one year on

Updated Oct 12 2019


ONE year into its term in power, and the PTI government has much to answer for.

Take the management of the economy.

There is little doubt that the new government that took power after the July 2018 elections inherited an economy with severe stresses that had to be addressed rapidly and decisively as they were propelling the country towards a balance-of-payments crisis. At the heart of it were the rapidly depleting foreign exchange reserves that at one point fell to a level barely sufficient to cover a month’s worth of imports.

If that level had continued to drop, Pakistan would have entered a financial crisis of the sort that we saw in 1998 and in 2008. Averting the slide was the top priority as was bringing the fiscal deficit under control. The deficit was touching 6.5pc of GDP, pushing government debt up, and complicating the effort to build up reserves.

This was a very serious situation, undoubtedly, and left to itself, the country was drifting dangerously close towards a crisis point. The government’s response took long to take shape, giving rise to protracted uncertainty. There was resort to emergency financing measures worth just over $7bn from countries including Saudi Arabia, the UAE and China. On almost all fronts it seemed as if the government was in a state of policy paralysis, with the circular debt continuing to rise, the stock market plummeting, the debt markets frozen, CPEC in limbo, key decisions on more LNG terminals left dangling, revenue collection falling to historic lows — despite two mini budgets, no major legislation on any subject, and so on.

Meanwhile, the government’s indebtedness shot up and net reserves plummeted to negative $16.8bn by May 2019, despite the emergency support provided by Saudi Arabia, the UAE and China.

Given the numbers, it is not possible to argue that the delay in formulating a robust policy direction was in any way beneficial to the economy. Ultimately, the decisive step of removing the PTI’s core point man on the economy was taken in order to put policymaking on stronger rails.

Nevertheless, many have questioned the appointment of Hafeez Shaikh as finance adviser to the prime minister, arguing that he represents the thinking of ‘purana’ and not ‘naya’ Pakistan. Aside from a ferocious macroeconomic adjustment, the budget brought no new ideas. The result is now there for all to see — skyrocketing inflation, rising unemployment and collapsing investment and growth.

Meanwhile, the economic managers are averse to disclosing the reality and continue to insist that things are moving in the right direction. It took one whole year for the PTI government to find its feet amid a sinking economy. In the year ahead, it must find the rest of its body too, and realise that running the economy requires more than slogans and loud claims.

Published in Dawn, August 20th, 2019