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There is a widespread perception that the revival of the stalled IMF programme will help Pakistan move out of its muddy fiscal and economic morass successfully. The government’s focus, too, appears to be the IMF and IMF alone.

Release of the withheld IMF tranche and the consequent loans from friendly countries would undoubtedly stabilize the depleting foreign exchange reserves and may strengthen Pakistan’s currency. This alone, however, would be a short-lived relief as the fiscal fundamentals are extremely weak.

The IMF is not the final solution to Pakistan’s fiscal and economic woes. It is, in fact, one of the stumbling blocks. There are many more and much bigger ones on the way.

The State Bank of Pakistan (SBP) this week issued its annual flagship publication namely ‘The Financial Stability Review (FSR) for CY21’. The review notably underlines that the financial stability largely depends on emerging macroeconomic dynamics in the context of trajectory of global commodity prices particularly the oil prices, geopolitical tension in Eastern Europe, evolving domestic political scenario, and monetary policy stance in advanced economies.

The Review presents the performance and risk assessment of various segments of the financial sector including banks, non-bank financial institutions, financial markets, financial market infrastructures and non-financial corporations.

FSR records that the commodity prices index has been showing a staggering rise and this rise is projected to continue. In addition, the consumer portfolio of banks may also face some strain due to both rate rise and general inflation levels. Liquidity is likely to remain a key challenge for banks to finance the increased demand for bank credit from public and private sectors.

The review underlines that a further increase in oil prices may exacerbate the current account deficit that may have adverse implications for financial markets and the real economy. With the rising input costs, notably the fuel and electricity cost, the exports may take a hit and the gap between imports and exports is likely to widen.

Of the challenges underlined by SBP economic review, notably, global turbulence in commodity prices particularly the oil prices, geopolitical tension in Europe and evolving domestic political scenario the incumbent government has yet to comprehend its consequences and take proactive measures to steer the fragile fiscal and economic state into safer waters.

The global economies, big or small, scrambled to secure their energy needs at whatever political or financial implication it may cost. India, setting aside global politics and its alliances with Europe and the US, secured its oil and gas needs from Russia at a discounted price.

It secured supplies more than its needs to build up reserves and/or re-export. Many other countries, even some European states, did the same thing. Pakistan did not exercise the option to secure its energy needs from Russia at a discount; it has, instead, increased fuel prices at the expense of its industry and multiple consumers.

The possibility of achieving domestic political stability appears remote in this environment of animosity between Pakistan Democratic Movement (PDM) and Pakistan Tehreek-e-Insaf (PTI). Country perception, investment, industry, businesses and revenue generation will continue to suffer.

These are all hard facts and must be recognised by all the stakeholders of the country. Some serious remedies have to be rolled out now.

Copyright Business Recorder, 2022

Farhat Ali

The writer is a former President, Overseas Investors Chamber of Commerce and Industry

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