For weeks noted economists and economic researchers have cited numerous indicators, like low foreign exchange reserves and high debt service requirements, especially very high inflation and unemployment – the dreaded spectre of persistent stagflation – to try and determine the country’s immediate future; some finally warning of a “great social and political upheaval”.
Yet two very recent developments ought to force a rethink from if there will be a default and subsequent disintegration of economic, political and social institutions to what form it is likely to take. And that, in turn, should turn their attention to a different set of statistics and indicators.
First it became clear that on top of all the tax increases and subsidy cuts IMF (International Monetary Fund) has also demanded a radical interest rate hike for successful completion of the EFF’s (Extended Fund Facility’s) 9th review – ironically insisting on monetary sector sovereignty for the same facility and then itself forcing SBP (State Bank of Pakistan) to squeeze money supply.
And while whether or not an uber hawkish monetary policy will control rising prices, or even if current inflationary trends are really demand driven to begin with, remains to be seen, there’s no doubt at all that this move will hurt businesses, even exports, prompt rapid layoffs and increase poverty, and also push up prices in many cases as producers typically pass the burden on to consumers.
And secondly, Moody’s downgraded Pakistan once again, this time mincing few words about “inadequate reserves”, “elevated threat of default” and “doubts about solvency” even if the present fiscal year is somehow managed.
It factors in a successful completion of the 9th review, yet also doubts if disbursements from the Fund and other lenders will reach the SBP’s vaults in time to avoid a default.
It also notes “very little visibility” about “Pakistan’s sources of financing for its sizable external payment needs” after the IMF programme. It estimates total external financing needs for the rest of this fiscal year around $11 billion, and $35-36bn for fiscal year 2024.
With less than $3bn in the bank, and remittances falling and exports sure to plunge after the monetary squeeze, all this all but confirms that even if the country manages to somehow limp into the next financial year, it will not be able to survive it. Especially, if you consider some disturbing indicators and trends that will become important when things fall apart.
Pakistan is the world’s fifth most populated country and ranks 92 out of 116 on the international poverty index.
Put two and two together and you can already see the tidal wave upon wave of desperate and destitute people forced into violent protest by hunger, starvation and a sense of profound loss when default puts stagflation on steroids and stokes outright hyperinflation.
Pakistan is also 113 out of 120 in the world literacy index, and stands at 140 out of 180 in the list of least corrupt countries.
One feeds the other, no doubt, and since law enforcement agencies, especially police, are some of the most crooked institutions in the country, it’s very likely that they will try to benefit from the crisis that is sure to erode central authority instead of trying to contain it.
The judiciary is a sad story of its own, ranking 129th out of 140 countries, even though the sacred lordships at its helm are some of the best compensated in the whole world; so it wouldn’t be too wise to hold any hopes with this den of corruption either.
You can bet that these trends would be music to the ears of terrorists and secessionists tearing at the country all over again. Not only has TTP (Tehreek-e-Taliban Pakistan) initiated another attack on the state, it has also joined hands and begun sharing weapons – left behind in Afghanistan by retreating US forces – with breakaway factions in Balochistan; double jeopardy for security agencies that must initiate fresh military operations to keep the country together.
The collapsing economy, threat of hunger and food riots, and the certainty of more terrorism show that some time very recently Pakistan crossed the point of no return between a failing state and a failed state. Perhaps that point would have been pushed further down the road if the political elite’s top priority weren’t its own self-interest and perpetuation of power, even at the cost of the country’s very survival; as it turns out in this case.
Now nothing can save the country from falling over the edge and the madness that will follow.
Copyright Business Recorder, 2023