EDITORIAL: Foreign shipping lines upset over non-payment of freight charges weighing anchor and sailing away from Pakistan might prove one headache too many for the government as the chronic dollar shortage finally threatens to bite into export revenue as well.
The Pakistan Ships’ Agents Association’s (PSSA’s) distress call to the ministry of finance must, therefore, be taken very seriously because, other than bordering countries, all Pakistani exports are delivered by sea. And if shipping companies that provide vessels for this trade stop their operations because of contractual violations, there’s no doubt that the little that comes to the exchequer from exports will also come to a screeching halt; effectively delivering the kiss of death to the economy.
Yet it’s not something that has hit the government out of the blue. Pakistan’s annual freight bill is around $5 billion, with most payments made in dollars. And it’s simply not possible for red flags not to have gone up all over the finance and commerce ministries and also the SBP (State Bank of Pakistan) once national reserves fell below that level.
Yet the fact that no visible efforts were made to forestall this crisis, by offering to hedge dollars or request installments for payments, can only mean that both monetary and fiscal sectors are run by people that are too incompetent and/or ignorant to understand the depth of the current fiscal crisis. It turns out that some shipping companies were considering winding up from here, because of reduced cargoes, even before the financial squeeze intensified, which only makes the government more culpable for not acting much sooner.
Now, with China reopening and chances of a soft landing increasing in the US, which might just escape a recession, markets are pricing in a pickup in international shipping activity over the next couple of quarters. That means Pakistan will need a proper miracle to keep the services of ships that carry out its trade, because pressing debt payments will consume much, if not all, of the trickle of foreign exchange that SBP is hoping for before the fiscal year runs out and it will be a while before freight payments can be cleared.
This will further complicate reviving the IMF (International Monetary Fund) bailout programme, which was torpedoed because of the government’s desperation to preserve what was left of its political capital by not going all in in terms of harsh taxes and cutting targeted subsidies.
These are uncharted waters because Pakistan has never sailed so close to complete bankruptcy and sovereign default. Unfortunately, most political commentary tends to concentrate on the fate of political parties and personalities, completely ignoring the fact that it is the ordinary people of Pakistan, a very vast majority of whom do not have sugar mills and feudal estate like the political elite, that will foot the bill for the economic meltdown and hyperinflation that seem just around the corner.
It would have helped if politicians so desperate to snatch or keep power in this Islamic republic could see that their ugly all-or-nothing fight for the spoils not only diverts them from doing their job as public representatives, it actually does harm to the country and the people.
The dollar shortage is no longer a new phenomenon. But the way it had been allowed to grow and threaten export earnings is unforgivable. It is already late to declare an economic emergency and put all else aside to do whatever is needed to save the economy.
But if big egos, small minds and childish bickering continue to dominate the political landscape, then it will be too late to do anything about it at all. Now that the rupee interbank rate has been allowed to find its level based on the market, the difficulty in meeting payment obligations would hopefully abate and the threatened boycott by shipping lines averted.
Copyright Business Recorder, 2023
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