Spending on borrowed time

Published August 12, 2021
The writer is a business and economy journalist.
The writer is a business and economy journalist.

THE country is now hurtling towards a state of isolation reminiscent of what we saw in the aftermath of the Abbottabad raid. Doors are closing and demands are rising. Meanwhile, at home the prime minister seems to have launched into election mode, cutting ribbons for development projects, rolling out programmes for farmers and promising more growth to come in the year ahead. The two developments seem at odds. Either the prime minister is oblivious to the enormity of the challenges the country is facing, or all that is about to happen to another Pakistan, not the one he is prime minister of.

Consider some of his remarks while launching the Punjab Kissan Card programme in Bahawalpur on Wednesday. “The health card and Kissan card are the biggest things you have accomplished,” he said to Punjab Chief Minister Usman Buzdar while addressing a farmers’ convention. “This will be the turning point in our history when it is written. That [was the time when] this country changed its direction for the purpose for which it was made.”

So real tabdeeli has only just begun. And then he said this change will be the path to the “country’s greatness”, and described the scheme as a “revolution”. Nothing less will do in Naya Pakistan. But then he added an odd little sentence, saying “wherever there is a PTI government — in Azad [Jammu and] Kashmir and Gilgit-Baltistan — or a coalition government as in Balochistan, we will talk with them to provide these cards to farmers so we can directly subsidise them.”

This came right after his visit to Karachi where he reviewed the Rs1.1 trillion Karachi Transformation Plan in a meeting to which his own ministers were the only invitees. Why hold such a meeting in Karachi in that case? Couldn’t it just as easily have been held in Islamabad, especially considering all the main attendees were members of his own cabinet who had flown in with him? The meeting reviewed projects like the cleaning of three storm-water drains, the Bus Rapid Transport projects, the K-IV water supply project for the city and the Keamari Pipri rail freight project among others. Later, Asad Umar tweeted that one of the bus lines would be operational by October and projects relating to drainage, sewage and roads will be completed by end of the fiscal year.

Does the economic picture support heightened spending by the state? The IMF holds the answer.

It is good that we have a prime minister focused on delivering such results for the people. But the heightened urgency attached to these affairs since the fiscal year began, at a time when the economy is running heavily on borrowed money and the country is hurtling towards isolation, creates a sense of disconnect. Leaders usually become this obsessed with schemes and projects when they have entered election mode.

Read: IMF acknowledges robust economic activity in Pakistan

Does the economic picture support heightened spending by the state? The IMF holds the answer. Without it, budget allocations cannot be sustained without creating massive imbalances in the macroeconomic framework. The external requirements to sustain the growth momentum are too large for the economy to afford on its own strength. And the IMF loan is currently in limbo, with renewed discussions to start later this month. They’re feverishly trying to come up with a plan to manage the circular debt that involves withdrawing another Rs42 billion in subsidies for consumers, meaning at least some people will receive increased bills. And their revenues are growing mainly on the back of growing imports, meaning you get more revenues but face a rising trade deficit.

Remittances are programmed to rise by 10 per cent this fiscal year, but the first month has not produced encouraging numbers. Latest data shows remittances fell by 2.7pc in July, which the State Bank attributed to the reduced number of working days in that month due to the Eidul Azha holidays. Be that as it may, the massive gap between what is expected and what actually showed up cannot be explained as simply due to the holidays. For every month they fail to make the target of 10pc growth, it means the remaining months need to show an even higher growth rate. Anything less than 10pc growth in August will mean growing discomfort on the external front.

The government is joyously trumpeting the export numbers, but what they’re not telling you is that the trade deficit is rising faster still. The trade deficit in July jumped by more than 85pc compared to the same month last year whereas exports rose by 16pc. This is where the bulk of the revenue growth is coming from — collections from imports. In a normal economy rising imports need not be a source of worry. But in a country like Pakistan, that has a long history of depleting its foreign exchange reserves on the back of high trade deficits (coupled with debt-servicing obligations) and landing up at the doorstep of the IMF for a bailout, it is indeed a source of concern.

It’s still not clear what expectation to maintain regarding the external sector as the months wear on, mainly because the government itself has not yet made up its mind. According to news reports, the finance and commerce ministries are working off wildly varying estimates of what the current account deficit will be by the end of the year, with the gap between the two ministries’ projections being as large as 60pc as per some reports.

What is clear, though, is that the country’s economy will not be able to grow if its isolation continues. The prime minister is going around the country doling out hundreds of billions of rupees in projects, but will he have the wherewithal to foot the bill? And does he realise that growing isolation means strained relations with multilateral creditors, especially the IMF? Pakistan is losing the battle of narratives that has broken out in the wake of the Taliban advance in Afghanistan. It cannot afford to lose its connection with reality.

The writer is a business and economy journalist.


Twitter: @khurramhusain

Published in Dawn, August 12th, 2021


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