Advisor to the Prime Minister, Miftah Ismail in a rare display of pseudo optimism neither univocally rejected nor accepted the alarming report of the International Monetary Fund (IMF) about the extremely bad health of Pakistan’s economy. Unlike the earlier furious and satirical reactions of Federal Minster, Ahsan Iqbal to sane advices of global lending agencies to take corrective measures for addressing the fiscal imbalances on time, Mr. Ismail gave a soft response to the recent IMF report that will affect the credit worthy image of the country in the international credit market.
The advisor on finance said in a vague manner that Pakistan will have no issue to arrange finances to meet its emerging needs but did not elaborate how this herculean task can be done. He did not disclose the sources where from the financial assistance would come. The contention that the global lending agency has adopted a different methodology to calculate the figures of foreign currency reserves is not tenable because in the same breath he vindicated the veracity of its report about the dismal performance of the economy. There is no iota of doubt that Pakistan’s external payment liabilities would surge to $ 24.5 billion this year and the reckless borrowing that continues under the recipe of ‘Darnomics’ would push it up to $ 27 billion in the next fiscal year.. If the borrowing spree goes on then and the economy is not turned around like the 2000-02 period then the external payment liabilities may go up to $ 45 billion in the financial year 2023.
The internal payment liabilities have also abnormally gone up. The cumulative burden of circular debt and tax refund to the business community has reached Rs. 1.3 trillion. The incumbent government does not have enough fiscal space to clear all these obligations, leaving a heavy baggage of economic mess to the next government. It would give Rs. 140 billion to the power sector including part payment of Rs. 80 billion on account of circular debt to IPPs and Rs. 60 billion to Pakistan State Oil. The government has not yet decided that how much of the Rs. 300 billion tax refunds shall be paid. It reflects acute liquidity constraints of the economy.
The external debt payment capacity weakened due to contraction of exports despite the generalized Scheme of Preference (GSP) plus facility allowing our exports tax free to the European Union market. Pakistan’s finished goods and primary commodities lost their comparative advantage because of high tariffs of energy input, multiple indirect taxes and lack of exports subsidy like the one given on the export of sugar. Neither the composition nor the market of exports has been diversified. Moreover, national interest has not been secured in the trade agreements with China, Indonesia and Turkey. The trade deficit with China alone is $12 billion plus and with Indonesia it is $ 2.3 billion. The economic scenario will become the worst if prudent fiscal and monetary measures are not initiated.