The Khan Government has failed to garner funds from Pakistanis living abroad as they do not find the climate conducive and merely patriotic slogans do not work. It been trying to push “Make in Pakistan” slogan but Pakistan has lacked even a modicum of industrial policy….writes Dr Sakariya Kareem
The economy has matched the political turmoil for the past several months especially since the Nawaz Sharif government was removed, succeeded by another left to move on crutches. This has been compounded by President Donald Trump tightening the screw, literally as it were, by withholding USD 1.6 billion and threatening more.
Having just devalued the rupee that caused a blood-bath at the stock exchange, its leaders going about with the proverbial begging bowl, Pakistan has still declared that there is “no economic crisis.” So bizarre was this claim by Finance Minister Asad Umar made while addressing the 11th South Asia Economic Summit in Islamabad that much of the media in disbelief chose to source its reports to the official Radio Pakistan. He said “those spreading rumours about the economy are not doing any favour to the country”. He grandly told the Summit: “all the fundamental economic indicators are improving as a result of effective policies of the present government”.
He said this when just a day before, stocks suffered the worst single-day decline in 16 months as the KSE-100 index tumbled 1,335.43 points (3.30 per cent) and closed at 39,160.60. A day earlier, during a meeting with TV anchors at PM House, Prime Minister Imran Khan had revealed that he was unaware of the SBP move to decrease the value of the currency against the US dollar and came to know about rupee depreciation through the media.
Khan acknowledged that such a sharp drop in the value of the rupee creates “uncertainty”, but stressed that he had not been aware of the decision to decrease the currency’s value.
The prime minister said the SBP was compelled to depreciate the rupee in order to preserve the country’s foreign currency accounts, as the government inherited a $19bn trade deficit from the last PML-N government.
Unable to conceal either his surprise at the devaluation and the way it has been carried out, Khan The prime minister admitted that Pakistan is currently facing crises on multiple fronts and “every single institution” is running in losses.
The economy has matched the political turmoil for the past several months especially since the Nawaz Sharif government was removed, succeeded by another left to move on crutches.
This has been compounded by President Donald Trump tightening the screw, literally as it were, by withholding USD 1.6 billion and threatening more.
Compound that with the Damocles Sword hanging on Pakistan as and when economic sanctions are imposed by the FATF that has found Pakistan’s measures to curb money laundering and funding of terror outfits, and the crisis becomes worse.
At this grim hour, the Imran Khan Government has chosen to make a virtue of ‘autonomy’ of is central bank and the State Bank of Pakistan.
Umar told media a day after the barely concealed devaluation that the decision had come from the central bank that enjoyed autonomy.
And Khan, still green behind the ears when it comes to governance, told the media that he had “found out” – he needed find out – that the decision had been made by the central bank and vowed to uphold its autonomy.
Still, having come to know only after the move had been made, he betrayed surprise and annoyance that the government, meaning the finance ministry, had been kept in the dark. Couching his disapproval under the autonomy plea, he told media that he had instructed that the government should be consulted while making such key moves.
His remarks caused a scare and Minister of State for Finance Hammad Azhar later clarified that the prime minister did not intend to roll back his commitment to an independent central bank, but only meant that he wanted greater “information sharing” between the bank and the government.
Umar told the summit delegates that “exports are increasing while imports and current account deficit are witnessing downward trend.” The ground reality is quite the opposite.
Where the finance minister only hours earlier tried to argue that pressures on the economy were easing, the SBP said: “The near term challenges to Pakistan’s economy continue to persist”. It cited the fiscal deficit (difference between state’s revenues and expenditures), rising inflation and low foreign exchange reserves as the key challenges.
Inflation has jumped and is now forecast to remain between 6.5pc and 7.5pc for the rest of the fiscal year, far higher than the target of 6pc and nearly double its level last year. “Economic activity is expected to witness a notable moderation,” the SBP statement added, meaning the pace of growth would continue to decelerate till it comes in at “slightly above 4pc” by the end of the fiscal year.
The target growth rate for the year was set at 6pc in the last budget, and since then different donor bodies have proffered estimates between 5pc and 6pc. This is the lowest forecast for the growth rate thus far.
On the external front, the statement noted a sharp deceleration in the pace of growth of imports as well as an increase in workers’ remittances and exports. Their combined effect “narrowed the external current account deficit from $5.1bn in Jul-Oct FY18 to $4.8bn in Jul-Oct FY19; a net improvement of 4.6pc”, though this was not enough to offset a continued decline in the foreign exchange reserves, that fell by $1.7bn from June 1 to Nov 23 this year.
Both Umar and a day later, Khan blamed the record rise of the US dollar against the Pakistani rupee in the interbank market to the past government and claimed that the situation was improving.
For Pakistan observers, this is also an admission that the crisis began in the summer of last year with the military and judiciary working in tandem to remove three-time prime minister Nawaz Sharif. The judgment on graft charges against him remains controversial as rather than prove any of those charges, the Supreme Court convicted him for his ‘intent’ and his failure to report his eligibility to receive money from business deals abroad in money transactions that never happened.
Pakistan was then saddled with a successor government of the same party headed y Shahid Khaqan Abbasi that remained a caretaker on crutches even as the all-powerful military engaged in political management to ensure Khan’s electoral victory.
Khan’s visits to Saudi Arabia, the UAE and China have been criticized as those carrying “the begging bowl”. Pricked by it, Khan has been giving interviews since and talking of emulating “Singapore model” of economic management. In Malaysia, he told Prime Minister Mahathir Mohamad that Pakistan had ‘decided’ on following the Malaysian model.
All this has not impressed his hosts abroad or the discerning people at home.
There is little doubt, however, that the most urgent item on Khan’s agenda is related to the crisis in the economy manifested by a yawning gap in the balance of payments, falling forex reserves and a plummeting rupee.
He is compelled to eat his words. As opposition leader, he had thundered endlessly against crawling to the IMF or foreign countries for financial bailouts. Instead, he had pinned his hopes on billions in donations from overseas Pakistanis and tens of billions from unearthing black money stashed abroad.
The problem arose when, after assuming office, he persisted in his delusionary approach, and the situation went from bad to worse. It was only when the army chief, General Qamar Bajwa, “launched” himself purposefully that Imran Khan reluctantly visited Saudi Arabia and China with bowl in hand, and Umar sat down to engage the IMF, both making a bald-faced virtue out of necessity.
But even this belated dawning of “wisdom” has failed to yield the desired results. China did not make any financial commitment during Khan’s Beijing visit. The Saudis transferred USD one billion which is insignificant and doesn’t tally with the tall expectations of government. The IMF delegation, too, returned to Washington without any commitment, leaving the PM and his FM wringing their hands in despair.
The Khan Government has failed to garner funds from Pakistanis living abroad as they do not find the climate conducive and merely patriotic slogans do not work. It been trying to push “Make in Pakistan” slogan but Pakistan has lacked even a modicum of industrial policy. A report in Dawn newspaper says: “The economy is beset by rent seeking resulting in rampant inefficiencies. The current state of confusion repelled serious industrial investors and perpetrated the trend of jobless low growth. A conscious effort can arrest the alarming situation.
“It is evident that the country’s expanding market has served overseas manufacturers better. Imported consumer items are not just stacked on supermarket shelves, roadside shacks and roaming sellers depend on cheap supplies dumped in wholesale markets across the country. Trade partners particularly China, Japan, India, Malaysia, Indonesia and even Bangladesh have capitalised on easy access to Pakistani markets both legally and through parallel channels,” the newspaper says.
Under such circumstances, Pakistan is likely to remain economically ‘sick’, no matter how much of its “begging bowl” is filled.