THE ongoing political turmoil in Pakistan has meant unsettling times for the government and its economic policymaking. The turbulence sparked by the opposition parties’ latest attempt to remove the prime minister through a vote of no-confidence has focused the ruling party’s energies on saving its leader. In doing so, it is losing sight of the economic ball.
In the last couple of years, we have seen Prime Minister Imran Khan regularly attempting to pacify angry, inflation-stricken voters to snatch back lost political ground through some questionable economic decisions. Consequently, we are almost back to the point where the previous PML-N set-up had left the economy. State Bank data shows that Pakistan’s official liquid foreign reserves are now below $15bn — in spite of the $2bn received through the purchase of debt through Sukuk and from the IMF.
Growing debt payments and a rising import bill have bled the debt-based dollar reserves in less than eight months from a recent peak of over $20bn in August amid reports that the IMF is not satisfied with the government’s decision to give another blanket tax amnesty — the third under its rule — along with a four-month freeze on petrol and electricity prices last month. The IMF seems reluctant to approve the seventh review of its $6bn funding programme until the future of the PTI set-up becomes clear. On top of that, the exchange rate is deteriorating, with the rupee closing at nearly 182 to a dollar in the inter-bank market on Friday.
Indeed, the external sector position can still be salvaged with a little effort. But the question is: will mounting political instability allow the government to concentrate on the economy in the next few weeks or perhaps months? With a 47pc increase in imports compared to 26pc growth in exports, which has expanded the trade imbalance by 82pc to around $32bn year-over-year and the current account deficit to $12bn in the first eight months of the present fiscal to February, matters appear to be headed south. The reasons for the economic, especially external account, troubles are quite obvious. In spite of the tall claims it has made in the last few years, the government has utterly failed to address structural bottlenecks to increase productivity and put in place long-term policies and incentives needed to boost the country’s merchandise exports for reducing reliance on foreign debt.
In comparison, we see India having pulled off what they are touting as a ‘made in India blockbuster’ by growing their merchandise exports to over $400bn between April 2021 and March 2022. It is time we too learnt from our mistakes and diverted our energies to fix our export sector if we want to end an endless cycle of boom and bust. If we don’t, all the hardships suffered over the last three and a half years — and earlier — would have been for nothing.
Published in Dawn, March 27th, 2022