Think before you leap
The International Financial Institutions (IFCs) and independent economist have warned that the federal government should initiate immediate corrective measures if they want to save the country from falling in debt trap which will become a reality if business as usual continues. They blame the former finance minister Ishaq Dar for the current finical difficulties particularly his ill conceived policy of acquiring high interest bearing short term commercial loans and barrage of regressive indirect taxes wiping out comparative advantage of Pakistan’s exportable primary commodities, finished goods and value added items.
It is worrying that current account deficit is feared to go beyond $ 17 billion by June next year and $ 23 billion in 2019-20. Two teams, each headed by the central bank governor and finance secretary, recently visited Europe and United States to hold road shows for floating Euro and Sukuk Bonds with a view to arrest the deteriorating foreign exchange reserves. Though Pakistan raised $ 2.5 billion, the amount is far less what the country requires to avert a potential balance of payments crisis. History, it appears is repeating itself. In 1999, Ishaq Dar used to say that engineered default is not acceptable, whereas in fact he had pushed the economy to the verge of default. The foreign exchange reserves had plummeted to the dangerous level of $ 300 million when PML-N government ended in October 1999.
Two difficulties are emerging with a vengeance, making mockery of the rulers and bringing to the fore their sheer incompetence to deal with pressing financial and economic challenges. It is pertinent to mention that Pakistan has been placed among four out of 10 countries that would default soon on repayment of external debt. The oil producing Venezuela has already defaulted. The international rating agencies have added Pakistan, Egypt and Ecuador to the list of potential defaulters. “Time is running out and it is high time to act before nothing is left to fall back upon, “warned renowned economist Dr.Hafeez Pasha.Thre is no rocket science, he said, to understand that this time around business as usual will not help overcome serious emerging challenges.”I can very well anticipate that our foreign exchange reserves could slide to $ 7.8 billion by the end of June 2018,as such, it would be insufficient for just six weeks of import”, he cautioned.”Under these precarious circumstances, floating $1to 2 billion Euro/Sukuk Bonds would not be enough, therefore I suggest taking remedial measures including increasing exports to avoid a major financial disaster,” he added.
The independent economists believe that repayment obligations will swiftly grow on commercial debt besides the maturity of $ 2 billion Sukuk Bonds. In their opinion, if Pakistan does not mobilize $ 10 billion within the current financial year, it could face a default as is being anticipated by some international agencies including Bloomberg. Pakistan has to pay $ 6.5 billion over the next six months. So far the government has succeeded in obtaining both, short term and long term loans from all internal and external sources to avoid default.. Now when Bloomberg extensively talk about defaulting countries, International Financial Institutions (IFIs), foreign commercial banks and other private lending organizations would not be that generous to oblige Pakistan.The problem has compounded as the United States, which enjoy 70 percent voting rights in the World Bank and International Monetary Fund, does not seem inclined to be favoring Pakistan to much at the moment to bail it out.
Former accountant finance minister Ishaq Dar had a myopic vision of the economy as compared with the highly capable technocrats like Abdul Hafeez Sheikh, Shaukat Tareen and Dr Salman Shah who intelligently managed the economy in the previous governments. He mismanaged the economy by taking easy recourse to massive borrowing at very high interest rates from all sides which eventually resulted in the accumulation of unprecedented debt. This is in that backdrop that independent economists believe Pakistan is facing an imminent debt trap and that bad time is ahead due to inaction of the present government. Who could imagine that current account deficit would increase over by $ 1 billion every month. It reached an unprecedented level of $ 12 billion last year despite reduction of $ 5 billion in annual imports. The solution lies in facilitation of exports. The government is already giving subsidy on the export of sugar and wheat. The same facility must be extended to the export of rice, sports goods, surgical items and light engineering products besides immediate refund of Rs.200 billion of sales tax to overcome the liquidity problem of exporters.