Time to resolve economic crises facing Pakistan

Dawn newspaper in its Editorial has termed Pakistan’s current economic situation dire. The new coalition government has inherited an economy encumbered with rising price, widening fiscal and current account deficits and diminishing foreign currency reserves. 

The country also faces a volatile political environment.

Former Finance Minister, Shaukat Tarin’s contention that the PTI has left the economy in a better shape than it had inherited in 2018 may not be rejected, but the challenge of turning it around, or at least providing some relief to inflation-stricken citizens anytime soon, is a formidable task for the new set-up.

It has rightly highlighted that exaggerating the facts will not help either. The estimates of fiscal and current account deficits given by Miftah Ismail at his Tuesday presser are on the higher side. But Pakistanis have seen this pattern before: every new government needlessly amplifies the economic crisis to discredit its predecessors.

Dawn has rejected Miftah’s the claim and said, the current account deficit is growing but is unlikely to reach US$20 billion mark.

The fiscal deficit is burgeoning, and may cross the previous government’s estimates of slightly over 6% of GDP. Yet it is an exaggeration to say it would increase to 10% by the close of the current fiscal year.

Foreign exchange reserves are down, yet State Bank of Pakistan says, country’s external financing needs for the present fiscal year are fully met from identified sources.

There is no denying to the facts that the economy is in deep trouble, and indeed in a worse state than what the PTI had inherited.

The situation has been worsened by the IMF decision to delay the US$ one billion tranche due to the third tax amnesty given by the previous government to the wealthy, as well as political uncertainty in the country.

China is taking its time to roll over its debt of nearly US$2.5 billion as it waits for the political dust to settle.

Once the IMF is back as expected, since Miftah promises to honour Islamabad’s commitments to the lender, and China rolls over its loan, the reserves are likely to start rising.

The question is do the new rulers have the acumen to fix the two major structural problems for reviving the economy.

That requires massive growth in tax collection, by expanding taxpayers’ base and eliminating exemptions to the powerful, as well as the privatization of state enterprises to reduce the gap between income and expenditure.

Further, governance and policy reforms are needed to substantially raise productivity for boosting exports and paying import bills.

The coalition may not have much time to undertake all these fiscal and productivity reforms, but it can initiate changes to restructure the economy for a sustainable turnaround in the longer term.

It is hoped that the incumbent government will neither resort to populist moves ahead of the elections nor put additional burden on the masses.