It has been reported that in order to keep Pakistan's economy afloat, avoid the IMF bailout package and successfully conclude the currently-valued $60 billion China Pakistan Economic Corridor (CPEC) project, Pakistan has taken into confidence countries like Saudi Arabia and China to help it come out of the woods by pledging a $ 6 to 8 billion breathing space through various options. "We have worked out proposals and shared the same with our friendly countries with the hope that all goes well for Pakistan. We have proposed to China to allow full imports bill or at least half payment in Pak Rupee as trade deficit with Beijing has ballooned to $12.5 billion last fiscal year. With this one provision, Pakistan can get relief in terms of reduced reliance on the dollar," an official sources in Finance Ministry is reported to have stated. Prime Minister's Adviser on Finance Miftah Ismail is reported to have contacted friendly countries for assistance in managing economy for the next financial year. The request has been made at a time when economic managers are preparing the budget 2018-19.
Islamabad considers that the CPEC could run well if Islamabad successfully avoids bailout package from the IMF for keeping Pakistan's economy afloat at a time when the gross financing requirement is estimated to touch $16 billion in the outgoing fiscal year. It will be the most regrettable and inappropriate option for Pakistan to exercise because it will be perceived as the incumbent government's failure to maintain fiscal discipline. It will also militate against claims the country has achieved financial stability.
Our successive governments' habit of living off borrowed money and seeking aid, grants and concessions from donors and friendly countries is not new. This trend has become a routine rather than an exception. This modus operandi has compromised country's sovereignty and respect in the league of nations.
The reasons for arriving every few years at this spot of financial distress is on account of leaderships' own doings - poor governance, incompetence, vested interests and political expediency. Friendly countries and donors have lately shown reluctance in doling out money to bail Pakistan out.
'The IMF in its report of March 2018 has assessed that the combined accumulated losses of Public Sector Enterprises (PSEs) in Pakistan including PIA, Pakistan Steel Mills, power sector and others have exceeded Rs 1.2 trillion or 4 percent of GDP.' Independent experts estimate the losses at around Rs 1.6 trillion.
Can a nation out looking at other nations for financial help justify this? These statistics alone unveil our financial managers' mindset and mode of financial governance.
In its election manifesto, the PML-N had promised to privatise the loss-making PSEs. But it failed to keep its promise primarily on account of vote politics and lack of determination to tackle complicated national issues. The path of least resistance was taken as a preferred option for state governance.
The IMF has also recommended additional electricity surcharges to facilitate cost recovery until the underlying structural issues are tackled. The Fund emphasised the urgency to arrest losses incurred by Pakistan International Airlines and Pakistan Steel Mill.
Fiscal risks, the IMF says, also stem from continued loss-making in Public Sector Enterprises (PSEs). Privatisation and restructuring of key loss-making PSEs have been largely on hold.
Another financial drain, again of our own making and poor governance, is the persistent Circular Debt.
The government has entered 2018 with a circular debt of Rs 441 billion in power sector which will surely create a cash flow situation in future, resulting in power outages not because of the non-availability of power but because of a liquidity crisis as reportedly stated by top officials at Power Division.
The circular debt stands at Rs 441 billion; however, the relevant experts claimed that circular debt has swelled to over Rs 520 billion. The loans and liabilities of over Rs 400 billion of power sector have been parked in PHPL (Power Holding Company Limited) and if the PHPL loans are included then the circular debt factually stands at Rs 920 billion. The power sector receivables have surged to Rs 850 billion.
The incumbent regime's commendable success of adding 7,500MW of electricity to the national grid will be undermined by the circular debt. What a waste of good money and investments!
Independent experts' advice for a comprehensive audit of the power sector supply chain, inclusive of fuel supply chain, the conduct of IPPs and Power Distribution Companies and conduct of consumers, have been ignored by the government. Placing Nepra under ministry of electricity has undermined its role as an independence regulator. Growing dependence on others for bailout has its financial, social and political consequences.
The nation had to agree donors' persistent demand for increase in electricity tariffs and depreciation of rupee. Cost of electricity has throttled our industry and competitiveness in exports.
Pakistan's prime issue is governance and governance alone. It is for better to pay off old debts steadily by living within your means.
(The writer is former President of Overseas Investors Chamber of Commerce and Industry)