Economy on the back-burner: some difficult decisions needed

The ongoing political turmoil in Pakistan only added to the woes of an already battered economy, which is faced with compounding crises including an escalating inflation rate and depleting foreign exchange reserves.

According to latest government figures, the inflation rate is running in double digits at about 12.7% as reported at the end of last month.

In addition, Pakistan’s foreign exchange reserves have declined to their lowest level since June 2020, and currently stand at a $11.3 billion, which is not nearly enough to cover two months of imports.

If this wasn't enough, a constant delay in payments from international lenders including the International Monetary Fund (IMF) has created uncertainty regarding balance of payments.

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Such a dire situation demands a united and coherent response from the political leadership of Pakistan, as would have been the case in any other country. But unfortunately, here it seems as though the leadership has not realised the consequences of the ongoing political quagmire.

Forces on both ends appear busy gathering political capital for their teams as parties struggle to stay afloat, a squabble that brought upon a constitutional crisis in the country.

“This is an unfortunate situation,” said one market expert on the condition of anonymity. The individual expressed that if the situation persists, Pakistan may end up in a situation similar to what is being faced in Sri Lanka and Turkey.

For those unaware with what’s happening on ground in these countries, Sri Lanka is facing mass protests after witnessing its worst economic crisis in decades while Turkey is battered from the impact of rising inflation rate which has jumped above 60%.

This is not an optimal situation for any country, least of all, Pakistan. And yet, this is where I fear we may be heading.

One might argue that I am painting a doomsday scenario. However, looking at Sri Lanka, we have to point out that one of the key factors that led to the island nation’s current woes was a heavy reliance on imported goods, not just luxury items but basic necessities such as cereal and milk powder, along with cumulative foreign debt.

This scenario seems eerily identical to Pakistan, which is faced with a similarly rising import bill on account of oil prices, and surging foreign debt.

Not to forget that Pakistan, which calls itself an agricultural country, is also importing food products including wheat, edible oil and lentils, repeatedly pointed out by none other than former finance minister Shaukat Tarin himself.

With elections seemingly around the corner, there is a high chance of the creation of a hung parliament.

Such a scenario would not be in anyone's favour, least of all, the larger interest of the country, as the incoming government would have to make crucial decisions on the economic front including negotiating with international lenders like the IMF.

The capacity of a newly-formed or reinstated government to able to bring reforms and much-needed economic stability is a question that yet needs to be answered.

Suffice to say, it is high time for a consensus within the country’s top brass regarding economic policy. The need of the hour is to implement stringent policies in order to enact agricultural reforms as well as increasing levies on rising imports.

The decisions required could prove both difficult and unpopular – albeit a necessary risk to be taken on only by a strong and capable government.

For the time being, however, one can only hope for a smooth political transition in Pakistan.

The article does not necessarily reflect the opinion of Business Recorder or its owners