Pakistan today is confronted with multiple financial, economic, governance and national identity challenges as never before. The situation therefore underscores the need for taking urgent steps to deal with these critical issues in an effective and meaningful manner.
The government functionaries today are virtually in a limbo. The caretaker government has neither the mandate, nor resources, nor competence, nor will to take policy decisions as it is hamstrung by various limitations.
Perplexed by the political uncertainty and fiscal challenges, Moody's last week changed Pakistan's rating outlook to negative from stable on "heightened external vulnerability risk".
"Foreign exchange reserves have fallen to low levels and, absent significant capital inflows, will not be replenished over the next 12-18 months," Moody's said in a statement then. "Low reserve adequacy threatens continued access to external financing at moderate costs, in turn potentially raising government liquidity risks." The country's current account deficit widened to 5.5 percent of GDP in the July-May period, much above the annual target of 4.4 percent.
Pakistan's foreign exchange reserves fell 3.30 percent to $16.243 billion during the week ended June 22, the central bank said on Thursday.
A strong dollar raises credit risk for Pakistan with large external funding needs, ratings agency Moody's said, as the country's foreign debts have already surpassed 30 percent of GDP.
Alarming is Moody's downgrading of ratings of prime banks of Pakistan of global reach on account of their loan exposure to the government. This could shake depositors' and business beneficiaries' confidence as never before. One must not lose sight of the fact that even in the wake of 2008 global financial crisis the banks of Pakistan had stood strong.
Pakistan is on the watch list of FATF and has been provided a check list to comply with in the next few months during which FATF appraisal team will visit Pakistan.
Looming water crisis is another acute issue. It is reported by experts that when water reaches the canal heads, the shortage will be over 50 percent which is the first ever phenomenon in the country's history. The water regulator has already placed a 9 percent cut in the water releases and after that 15-20 percent slashing down in provincial shares would be the second one in a row in the ongoing month, adversely affecting the food security of the country.
Environment too has taken its toll as temperatures at Skardu are reported to have dropped to 20 to 22 degree centigrade due to which a further huge dip in the water inflows is being anticipated in next week. In the worst case scenario, if the status quo continues, then in just 7-8 days, Tarbela and Mangla dams will reach dead levels and it would be the first time in the history of the country that both the mega reservoirs would have little or no water in the first week of July.
The nation today is confronted with a slew of challenges. The caretakers must make some contribution, however modest, towards arresting the slide. They are required to make a serious effort to improve the situation. They must stop playing the role of a silent spectator; the situation is profoundly grim.
(The writer is former President of Overseas Investors Chamber of Commerce and Industry)
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