Sinking feeling

Published April 13, 2023

IN the last six months since October, we have witnessed an unmistakable deterioration in the country’s economic fundamentals, with gloom overtaking whatever little hope the people had regarding their future.

Global rating agencies have downgraded Pakistan’s credit score further into junk territory, saying Pakistan is hurtling towards sovereign default because of its balance-of-payments crisis and severe dollar crunch.

Indeed, it is surprising that the government has so far dodged default despite the delay in the finalisation of the IMF bailout deal. However, the costs of this economic downturn have been too steep to bear for people and businesses.

Multilateral lenders such as IMF, the World Bank and the Asian Development Bank have also slashed their growth and employment forecasts in recent months.

For example, the IMF has downgraded its projection for the country’s GDP from a reasonable 3.5pc to just 0.5pc in this six-month period. Its latest GDP growth prediction is closer to the forecasts of the World Bank (0.4pc) and ADB (0.6pc). These lenders have also predicted significant loss of jobs as factories shut down or cut their output across different economic sectors.

Against this backdrop, the warning from foreign firms operating in the country of ‘mass industrial unemployment’ over raw material shortages — thanks to import restrictions meant to stop the outflow of whatever foreign currency reserves we have left — was only to be expected.

The statement by the Overseas Investors Chamber of Commerce & Industry chief that business continuity was at stake for most foreign players in Pakistan sums up the economy’s precarious condition. OICCI members are also facing delays in the repatriation of profits and dividends to the tune of $1.5bn and are holding back — at least temporarily — new investments of close to $2bn.

But foreign investors aren’t the only ones facing hardship caused by the unavailability of raw material, currency depreciation, price inflation, the dollar crunch, suppressed demand, etc. National companies, including exporters, face the same issues. Unending political instability has made matters worse in the last one year, taking the government’s eyes off the economic ball.

The IMF says the unemployment rate will rise from 6.2pc to 7pc due to the downturn. However, economists like Hafeez Pasha believe that the unemployment rate is likely to hit 10pc, with the number of jobless people increasing by over 2m to 8m by the end of the current fiscal year.

He has repeatedly stated in interviews that the country is set to face another year of negative GDP growth rate. The last time the economy shrank like this was during the Covid-19 lockdowns in 2020. What worries one most is the grim future. Once nations fall below a certain economic threshold, they may find it extremely hard to recover.

Published in Dawn, April 13th, 2023

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