Amidst the high anticipation, expectations and a lot of emotions mixed with millions of prayers for weather to be perfect for the India-Pakistan world cup game a tweet was trending “India ke run rokna aur U.S dollar ko 121 se niche laana hamare bas ki bat nahi hai”. The comment though humorous highlighted a very key facet of the Pakistani economy. The Pakistani economy has been a debacle now for quite a period of time. In this article, we are going to discuss that.Context
The Pakistani GDP grew at only 3.3% in the fiscal year 2018-19 a five year low. Even though the drop in India was also a five year low but overall the Indian economy is 9 times bigger than the neighbours. The fact that 30% of the total central budget goes as a payments for the debts while their Indian counterparts are at 18% goes on to show the sheer unrest and dire need for serious steps to strengthen the economy. The difference though at 12% looks small but is not when the talk is in billions. The rise in the unemployment and continued inflation has also fueled in this shambolic state. The ruling government had seeked help from their U.S. and other Counterparts such as ADB Asian developments bank and last month an agreement was reached the I.M.F will lend Pakistan a whopping $6 billion to alleviate the economic agony.
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What is I.M.F and why this much amount?
The international monetary fund(I.M.F) is an international organization headquartered in Washington, D.C. it consists of 189 countries in total working to boost the global monetary cooperation, secure financial stability and promote a sustainable economic growth around the world. This $6 billion help is not a big give away considering the organization has over $667 billion estimates as of now. But there is always a second face to everything the U.S. has been a great investor in Pakistan as it is an important component of the balance of power in south Asia. Since the war on terrorism began in 2001 Pakistan has been an ally helping the U.S. military campaigns in Afghanistan.The coalition support fund(C.S.F) has also helped Pakistan gain a significant amount in the past as well but it’s all history for now the current trade war between the two super giants has added a new side to the I.M.F. conditions. Several U.S. experts were against this agreement as this money will straight away go to china for their debt. The trade war between china and U.S. is on peak at the moment and tension in the trade market is high. Secretary of state Mike Pompeo in the past warned any potential IMF bailout for Pakistan should not provide funds to pay off Chinese lenders, saying “we will be watching what the IMF does … there is no rationale for IMF tax dollars and associated with that American dollars are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself”.
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Where is it coming from?
Well, the abysmal economic order in Pakistan is nothing new but it has only gone worse than the previous occasions. The primary reasons are the low exports, poor foreign exchanges, poor trade policies and inflation. The current government can’t be blamed solely for the tattering state as the previous government Pakistan Muslim league-Nawaz(PML-N) followed a high import led strategy which has led to this day now the imports are much higher than the exports and traders have taken a drastic hit. Going back a year or two when the neighbours stared this down slide it was said “china is the problem and solution” prognosticating this day. The major driver in the increased import is the China Pakistan economic corridor(CPEC). By the end of June 2018 the gross debt of Pakistan reached USD $179.8 billion with an increase of $25.2 billion within a year. The depreciation of the Pakistani rupee only has caused USD $7.8 billion in the total debt. The inflation rate is now all time of 9.9% again a record five year high. The current policies of the financial system has not helped the cause well at all. The Imran khan led government has made policies like e-visa to enact the foreign policies but effects are a long term to be seen. The too much imports have resulted in a crippled domestic growth as traders are failing to get their products on the priority. Recently the Abu Dhabi Fund for development(ADFD) Has provided development loans to the country.The look ahead
The way forward for the current government is arduous as it requires a lot of needy efforts to abate this crisis. The U.A.E. has agreed a foreign aid of $21 million to the industrial lot but the country needs to bolster its domestic industry because if it is one of the prime exporters of leather then it can spread the wings in other fields too, it will help in eradication of the difference between the imports and exports rate. The ease of doing a business must be made more flexible. The environment should be made more industry alike and schemes should be brought on for additional positive measures for the economy. The inflation has been a long time high and should be brought down to reasonable level. The foreign aids and loans from the bank are not the permanent solutions, it may pacify the situation temporarily but on a longer term it will hurt very badly. The investments in the various sectors too needs a look again even though the defence is 1/6th of their arch rivals but the investment is much higher. If the 30% is going as an interest payment for the debts than it does leave a problem of proper allocation of the budget resources. The depreciation of the rupee added the unwanted load to be managed, even though it has been brought down a bit in the last few months but needs constant circumspection as every run in a game and every rupee in a budget counts a lot.Conclusion
The situation is critical and the economy is on the crippling edge. The helps won’t be their every time it was in 2008 and in 2013 as well but why it’s needed at first place. The current aid from the I.M.F will be a 22nd loan from the organization. The circumstances require a very intelligent handling but seems like that’s also very difficult for the Pakistani government. The advisor of the prime minister recently announced that they will be getting a $2.3 billion aid from the Asian development bank(ADB) but yesterday the ADB issued a statement that the discussions are going on and we have not reached a final decision as of yet. It seems the decision making and man management has been poor not only on the cricket field but on the economic front as well. Both are in shambles and both the teams of the nation struggle to stay alive in the tournament one in the cricket other in economic tournament.
- Suraj Pandey
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