The ongoing political turmoil in Pakistan has meant troubling times for the government and its economic policy. The turmoil caused by the latest attempt by opposition parties to impeach the prime minister through a no-confidence vote has focused the ruling party’s energies on rescuing its leader. In doing so, he loses sight of the economic ball.
Over the past two years, we have seen Prime Minister Imran Khan regularly attempt to appease angry, inflation-stricken voters to regain political ground lost through questionable economic decisions. Therefore, we are almost back to the point where the previous PML-N configuration left the economy. State Bank data shows that Pakistan’s official liquid foreign exchange reserves are now below $15 billion, despite receiving $2 billion from debt purchases through Sukuk and the IMF.
Lily: Will Pakistan’s economy survive the latest political attack?
Rising debt payments and a rising import bill have bled debt-based dollar reserves in less than eight months after a recent spike of more than $20 billion in August, as the IMF is unhappy with the government’s decision to grant another blanket tax amnesty – the third under his rule – as well as a four-month freeze on petrol and electricity prices last month. The IMF appears reluctant to approve the seventh revision of its $6 billion funding program until the future of the PTI setup becomes clear. On top of that, the exchange rate is deteriorating, with the rupee closing at nearly 182 to the dollar in the interbank market on Friday.
Indeed, the position of the outer sector can still be saved with a little effort. But the question is: will the growing political instability allow the government to focus on the economy in the coming weeks or perhaps months? With a 47% increase in imports compared to a 26% growth in exports, which widened the trade imbalance by 82% to around $32 billion year-on-year and the current account deficit to $12 billion in the first eight months of the current fiscal year through February, things seem to be heading south. The reasons for the economic difficulties, especially external ones, are quite obvious. Despite the strong claims it has made over the past few years, the government has failed utterly to address the structural bottlenecks to increasing productivity and to put in place the long-term policies and incentives needed to boost the country’s merchandise exports to reduce dependence on external debt. .
By comparison, we see India succeeding in what it touts as a “made in India blockbuster” by increasing its merchandise exports to over $400 billion between April 2021 and March 2022. It’s time we too learned from our mistakes and divert our energies to repairing our export sector if we are to end an endless cycle of boom and bust. If we didn’t, all the hardships we’ve been through over the past three and a half years – and before – would have been wasted.
Posted in Dawn, March 27, 2022