F.P. Report
LAHORE: The Ferozepur Road Industrial Association (FRIA) senior vice chairman Shahbaz Aslam has said that the economic and fiscal discipline of the country will be driven under the direction of IMF now, leaving little room for the government to make its way, which has not come up with any plan to fix the economy and provide relief to the trade and industry.
Higher inflation, rising utility tariffs, growing unemployment and, above all, the malaise and despondency among the masses are likely to continue unattended.
Economic vulnerability now looms with political uncertainty at its core. The Moody’s Investors Service has recently given a ‘credit negative’ signal to Pakistan in the face of prolonged political ambiguity and social tensions over election results, which will make it tough to approach the IMF for a new program, weaken external economy and make liquidity management more challenging.
Shahbaz Aslam said that the privatization commission of Pakistan is struggling since months to effectively put in place the privatization of loss-making public sector enterprises; notably, the Pakistan Steel Mills and Pakistan International Airlines despite the urgency and concern expressed, time and again, by the IMF.
The election held on Feb 8th in Pakistan threw up a number of surprises with a significant shift in the country’s political landscape.
The decision-making processes and any constitutional amendment are likely to be driven and influenced more by conflicting self-interests of the coalition partners, watering down the key objectives. This is not what the country needs in these unprecedented times of political and economic challenges confronting the nation.
Pakistan’s government liquidity and external vulnerability risks will remain very high until there is clarity on a credible longer-term financing plan.’
It said Pakistan’s foreign exchange reserves remained ‘very low’ at $8 billion as of Feb 2, 2024, sufficient to cover only about six weeks of imports and well below what was required to meet external financing needs for the next three to four years.
Based on the IMF’s report published in January, Moody’s said Pakistan’s external financing needs were about $22 billion in the next fiscal year (Jul-Jun) 2024-25 and about $25 billion annually in fiscal 2026 and 2027. The country will need a longer-term financing plan to meet its very large financing needs for the next few years, after its current IMF program ends in April 2024.
At present, Pakistan has been assigned a stable rating of “Caa3” by Moody’s. It said prolonged delays in the formation of a government would increase policy and political uncertainty at a time when it faced very challenging macroeconomic conditions.
Hopefully, the new coalition government will be sensitive to the social, economic and fiscal issues of the state, which in the meantime have exacerbated further.
Pakistan’s debt-to-GDP ratio is already above 70% and the IMF and credit rating agencies estimate that interest payments on its debt will soak up 50% to 60% of the government’s revenues this year. Debt exceeds legal limit by Rs14.5tr.
That is the worst ratio of any sizable economy in the world. Every macro fundamental is flashing red; notably, growth, debt, revenue mobilization and investment. Some strong and immediate decisions have to be taken by the new government.
