EDITORIAL: Finance Minister Shaukat Tarin while speaking at a workshop titled “Pakistan’s Economy – Fragility and Smart Action Strategy” organised by Headquarters Southern Command emphasised that the realisation of 6 to 7 percent growth requires economic stability. Today stabilisation is no longer defined as it was in 2018/19: (i) reducing the historically high current account (C/A) deficit of 20 billion dollars given that today the current account (C/A) is in surplus; (ii) maintaining a significantly overvalued rupee with the objective of understating external indebtedness that the PML-N administration during the tenure of last PML-N government with Ishaq Dar its Finance Minister wrongly supported (with the rupee only slightly overvalued at present); and (iii) low foreign exchange reserves unable to meet three months of imports which in June 2021 were slightly over 16 billion dollars. Instead stabilisation today is defined as fuelling growth, which necessitates continuation of monetary and fiscal policies post-dating the onslaught of the pandemic which are at odds with the upfront extremely harsh time-bound structural benchmarks agreed with the International Monetary Fund (IMF) by the previous economic team leader Dr Hafeez Sheikh that stifled growth to 1.5 percent and fuelled inflation to 13 percent in 2019-20 pre-pandemic.
Inclusive growth, as per Shaukat Tarin, is targeted to be achieved through the Prime Minister’s signature Ehsaas programme, Sehat Sahulat Card, housing package and interest-free credit and subsidies to the poor farmers. While the IMF is unlikely to raise any objections to the inclusive growth agenda yet there is a serious concern that unless Tarin can generate higher revenue collections and implement a power sector reform agenda that is yet to be agreed with the World Bank, the lead agency in this sector, targeted to lower the circular debt flow and stock, the scheduled September Fund reviews may be deferred. A further deferral would make borrowing costs even higher and strain Pakistan’s growth momentum.
The Fund rather naively argued in its April 2021 document that an upside for growth and programme objectives arises from the political calendar: with the Senate election having taken place in March 2021, there is a window to accelerate reforms until the general elections scheduled for August 2023. No political government, approaching mid-term of its tenure, with the honeymoon period clearly over, can sustain a tight monetary and fiscal policy that stifles growth on the one hand and fuels inflation further on the other.
In addition, there were two exogenous risks identified by the Fund in its April 2021 second to fifth reviews. First, the failure to implement the Anti-Money Laundering/Combating the Financing of Terrorism action plan with the Financial Action Task Force (FATF) that could hamper external financing and investment, a risk that has disturbingly come to pass with Pakistan remaining on the grey list. And second, “geopolitical tensions” were cited by the Fund as a risk and sadly these have exacerbated with the speeding up of the departure of US-led NATO forces from Afghanistan which, in the absence of an intra-Afghan agreement, if past precedence is anything to go by, is likely to spill over to our borders.
Exogenous factors particularly with respect to geopolitical considerations have thus begun to impact on our fragile economy and though our mantra today is friendship in peace rather than in conflict as in the past yet in recent months Pakistan’s foreign policy has been compelled to become reactive as opposed to proactive and the Khan administration’s earlier focus on economic diplomacy has clearly been forced to take a back seat.
It appears to be becoming increasingly difficult for the government sustain a morally robust foreign policy especially because the country’s economy is fragile and dependent on foreign assistance be it through foreign investment, borrowing, deferred payment facility for oil imports or trade agreements. We therefore need to move towards recalibrating its multifarious policies to take all factors, internal and external, into account.
Copyright Business Recorder, 2021