Asad Umar l
Nawaz Sharif is going around trying to build a narrative to rescue his sinking political ship these days. An important element of the narrative is that Pakistan has progressed tremendously under his leadership in the last 4 years. This narrative is attempted to be built around the elimination of load shedding, the buildup of foreign exchange reserves and investment driven growth.
A particularly disturbing feature of the foreign borrowing in the last one year is increasing reliance on short term borrowing from commercial banks.
The reality of these claims is exposed by news released in just the last 24 hours. On the one hand, the state bank issued its weekly foreign exchange reserves data which showed a further $300 million decline in state bank reserves. This brings the decline in state bank reserves in the last 4 weeks to $1.8 billion and the cumulative decline in last 9 months since the IMF program ended to $4.5 billion. Collapsing exports, galloping imports, and stagnant remittances & foreign investment are causing this rapid decline in reserves despite heavy external borrowing resulting in record build-up of external debt. A particularly disturbing feature of the foreign borrowing in the last one year is increasing reliance on short term borrowing from commercial banks.
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After spending billions on advertisements and cutting innumerable ribbons, the reality as reported in the newspapers today is that the shortfall of electricity exceeded 8,000 MW.
The rapidly worsening external account is now ringing alarm bells in corridors of international financial institutions also. According to newspaper reports, World Bank has refused to lend for budgetary and balance of payments support due to deteriorating macroeconomic conditions. The consensus amongst independent economists is that Pakistan is headed towards another bailout package after the next general elections. The worst part is that the consequences of the disastrously flawed economic policy were visible to anyone who understood the economy and the rapid deterioration of the external account is no surprise at all. By destroying the competitiveness of the Pakistan economy the government has directly contributed to the exploding trade deficit and is sinking Pakistan into a debt trap which will be extremely costly for the whole country in general but the most vulnerable segments of society in particular.
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The lingering power crisis
The other big achievement being touted is additional power generation capacity. You can even say that is the flagship of the economic policy of Nawaz Sharif’s government. After spending billions on advertisements and cutting innumerable ribbons, the reality as reported in the newspapers today is that the shortfall of electricity exceeded 8,000 MW. So after making pre-election promises of eliminating load shedding in 6 months, the reality is that after more than 4 years in power the country is still facing massive load shedding. The core problems of the sector remain unresolved even after 4 years.
It is urgently required that the government, instead of being in denial and trying to claim economic turnaround, should make amends and make changes to its failed economic policies.
In its first month in power, the government paid out 480 billion rupees of circular debt as the massive outstanding amounts were choking the energy system and causing a serious disruption. We were told that never again would the country face the menace of circular debt. The reality is that as the newspapers reported today, circular debt has again crossed 400 billion rupees. This despite the fact that the government has collected hundreds of billions of rupees in the last 3 years by imposing multiple surcharges on the electricity tariff. So, on the one hand, these surcharges have played a critical role in destroying the competitiveness of our industry and resulting in exploding trade deficits, and on the other still unable to control the menace of circular debt.
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It is urgently required that the government, instead of being in denial and trying to claim economic turnaround, should make amends and make changes to its failed economic policies. The single most urgent issue is to restore the competitiveness of Pakistan’s economy and in particular the export sector. To achieve this , he stated, the heavy taxation on input costs needs to be reduced, government must stop holding back refunds to show artificially low fiscal deficits, attempts to artificially control exchange rate thru administrative measures must not be resorted to and strong arming trade & industry to extort taxation from the formal sector must be immediately stopped.
While it may be too much to expect from a seat warming prime minister but still one hopes that Shahid Khaqan Abbasi will take the tough decisions required and change the course of a disastrous economic policy set by the ousted prime minister and the under investigation finance minister.
Asad Umar, Member of the National Assembly from Lahore, is a senior member of the Pakistan Tehreek-e-Insaf. His professional achievements as the CEO of Engro Chemicals earned him prestigious Sitara-i-Imtiaz. He did his MBA from Institute of Business Administration (IBA), Karachi. The views expressed are those of the author and do not necessarily reflect GVS editorial policy.