IT is a matter of great relief for Pakistan that we have successfully reached a staff-level agreement with the Inter-national Monetary Fund (IMF) on a stand-by arrangement worth $3 billion. This will help us avert the looming threat of default and a possibly disastrous economic scenario portrayed in the film Mad Max.

While much has been written about the chaos that follows a sovereign default, it is important to remember the words of renowned writer Ernest Hemingway, who aptly wrote in The Sun Also Rises: “How did you go bankrupt? Two ways; gradually, then suddenly.”

Although we now have some breathing space, our policymakers must take all necessary measures to ensure an increase in exports. This is crucial because our trading partners’ central banks are currently tightening their monetary policies and raising interest rates to cool down their economies and combat inflation. Recent statements from the United States Federal Reserve, the Bank of England, and the European Central Bank have emphasised the need to continue raising the interest rates even if it means entering recession. The rise in yields in the US treasury market and UK gilts market indicates the challenging times that lie ahead.

But what does this mean for Pakistani exporters when our main trading partners’ economies are heading towards a recession? The signals are already evident in the data, such as the recent rise in unemploy-ment in Germany, which is Europe’s largest economy.

Based on the recent statement from the State Bank of Pakistan (SBP), we can anticipate inflationary pressures in the coming months, particularly in terms of wage inflation.

This can have a detrimental effect on exporters, adding to their costs. Moreover, historical data from 2013 to 2017 shows that the fixed exchange rate has not been favourable to our exporters’ competitiveness, as there is a clear correlation between a strong currency and a reduced export quantum for Pakistan.

For small and medium-sized exporters who are already grappling with high electricity costs, the forthcoming tsunami of inflation will make it even harder for them to meet export targets and compete in the global market with the trading partners entering a recessionary phase.

Pakistani decision-makers must recognise that we operate in a global marketplace, and if the Western economies experience a recession, other countries, like Bangladesh and China, will adjust their strategies to support their exporters. Therefore, it is imperative to provide support to exporters in Pakistan during this challenging period. They can bring in valuable foreign exchange, and that will surely help lift Pakistan out of its debt crisis.

Drawing from the wisdom of Herman Kahn, the renowned military strategist who formulated the Kahn’s Escalation Ladder and was founding member of the Hudson Institute, it appears that the world is turning a blind eye to potential risks. With geopolitical tensions escalating in the Russia-Ukraine conflict and the possibility of a miscalculation between China and Taiwan leading to a war, the dangers

of a global trading disruption could surpass even the Russia-Ukraine conflict. In such a scenario, it is crucial for Pakistani decision-makers to have a contingency plan in place to address the potential plummeting of our exports.

The authorities need to prioritise and support the community of exporters. They play a vital role in generating valuable foreign exchange for the country. By standing together and providing the necessary assistance, the communityof exporters can navigate through the current debt crisis and secure a prosperous future for Pakistan.

Adil Hanif
London

Published in Dawn, July 8th, 2023