PRIME Minister Shehbaz Sharif on Monday came to the rescue of his finance team led by Ishaq Dar, amid continuing speculation that Pakistan was on the verge of a debt default.
“Pakistan will not default,” he declared at a news conference as he explained that his administration was forced to accept tough IMF loan conditions because the multilateral lender no longer trusted Pakistan, thanks to the former PTI government’s failure to honour its commitments.
But Mr Sharif’s reassurances may not be enough. There are reasons why speculation has persisted, even though Pakistan hasn’t missed or delayed a single debt payment since the financial crisis set in earlier this year. At the moment, a major concern is foreign exchange reserves dropping to a four-year low of $6.7bn as inflows dry up on account of Islamabad-IMF tensions.
The disagreements between Pakistan and the Fund include, but are not limited to, the government’s flood-related expenditure estimates and serious fiscal slippages because of the failure to collect enough tax revenues to meet budgeted targets.
On top of that, a certain narrative is being pushed by the PTI to pressure the coalition government to announce early elections. Before the news conference, PTI chief Imran Khan had already painted a dire picture of the economy while calling for snap elections to pull the nation out of the current crisis. Failure to do so would push us to default, he had warned.
No matter how exaggerated that assertion may be, it is fed by deteriorating economic conditions, especially falling reserves, and the delay in policy-level talks with the IMF for the disbursement of the next loan tranche of $1.2bn.
The PML-N shouldn’t blame the opposition for exploiting the situation, however: even its previous finance minister, Miftah Ismail, has been issuing similar warnings of late.
The PML-N-led coalition government may indeed have warded off the possibility of a near-term default. However, it continues to face mounting challenges: spiralling inflation, massive devaluation of the rupee, elevated fuel and power prices, and shrinking foreign currency reserves.
Together, these are cause for serious concern. The present crisis results from inconsistent economic policies, the pursuit of flawed priorities that have favoured politically powerful lobbies, and questionable fiscal governance.
Each government has blamed its predecessor for the bad economy it inherited, but none has done much to fix it. With new elections — if held as per schedule — less than a year away, the PML-N is clearly in a bind as economic decisions, such as the hike in fuel prices, are eroding its political capital in its fortress of central Punjab and elsewhere.
It is now looking for shortcuts to please the voters. But that is a dangerous road to travel as past experience has shown us. It is time political considerations stopped dictating economic policy. Or these fears could well become a reality.
Published in Dawn, December 14th, 2022
