Economic sovereignty at risk

While the IMF forecasts emerging economies, notably China and India, to drive the global growth, Pakistans economic sovereignty is facing serious challenges as foreign investors remain elusive.
To blame it entirely on the poor law and order situation amid rising terrorism and target killings in the metropolis is to allow the countrys economic administration an unnecessary excuse to escape from responsibility.
The fact that Pakistan has remained under IMFs programme for a large part of the last two decades narrates the inability of the establishment and parliamentarians to run the economy in accordance with global standards; a question mark on economic sovereignty is therefore a natural consequence.
The fiscal quagmire created by the previous governments short-sighted economic approach has been deepened by the current regime.
This has been made possible by the same kind of politically-motivated populous decisions that marked the fag end of the previous regime. Included in the list of such decisions are the failure to take well-quantified revenue enhancing steps, and the failure to plug public sector inefficiencies, amid rigid expenditures on debt servicing and defence-related expenditure.
The debt profile of the country is worsening day by day with fears of a looming debt trap. With over half a billion debt increase in the first quarter of FY11, shared equally by domestic and foreign components, the countrys total debt reached Rs10.7 trillion. With fiscal deficit threatening to reach Rs1.5 billion for FY11, according to the Finmin, a significant rise in the countrys debt is inevitable.
This raises serious questions of the governments ability to repay debt in the absence of a well-drafted plan to reduce the burden over a period of time. However, even if learned people like Hafeez Sheikh, Nadeem-ul-Haq, Shahid Kardar and their teams come up with a medium-term road map, the concerns on its continuity and its implementation severely undermine the credibility.
The lack of continuity of predictability of economic policies is a critical factor in the eyes of foreign investors, despite promising demographics and significant growth potential in an array of untapped areas.
The ad hoc approach of political leaders is killing the economic potential. For instance, in very recent memory, one day the government decided to incentivise imported cars, and the next day it withdrew its decision.
In their speeches, the politicians promise to plug in the inefficiencies of the power sector and other PSEs. Yet, they reinstate political nominees in these companies, staunchly oppose staff rationalisation by a privatised power utility company, advocate the heavily criticised rental power plants, and the list goes on.
One may argue one policy over the other, but once you decide upon a policy for the long-term, it is imperative to stick to it to gain credibility. Nonetheless that consistency remains elusive.
Lastly, the non-compliance of the IMFs stipulated economic reforms owing to the lack of politico-economic will and incompetency of administrative authorities has started being priced-in by international investors.
The Credit Default Swap - the cost of insuring debt - on Pakistan sovereign bond has risen by nearly 345 basis points since the dawn of 2011. The Asian Development Bank, reportedly, seeing the reluctance of foreign investors to accept Pakistans sovereign guarantee, has proposed a solution to become a third-party guarantor.
These are unfortunate and disturbing developments for Pakistan and its investors, and it is yet to be seen how long and effective will it remain in the collective conscious of global investors.