Pakistan State of Affairs-Going forward

After border tensions of India and Pakistan in Feb 2019, situation in Pakistan is taking turn where government is handling the situation on highly positive manner. On using words against minorities in Pakistan Punjab Information Minister has been sent home. Another case against Faisal vawda is in process and most probably he would also get some answer. By doing so Imran Khan has proved that what the actual Islam means and what the Riasate Medina mean, where life of people other than Muslims were safe like Muslims and they enjoyed due support of the state with same respect as given to Muslims. In fact by doing so Imran Khan has shown that now thoughts of Quide Azam and Allama Iqbal would prevail in Pakistan who wanted a state of Muslims were everybody has to get equal support and respect. This is contrary to what India is doing now with Modi in charge who belongs to RSS movement that came in to India by taking of examples of Hitler and Mussolini in 1930 in Europe who ruled on the basis of killings of minorities. RSS in fact says that except Hindus nobody would be allowed to live in India. In Gujarat they killed thousands of Muslims by saying that this is how they are going to extinguish Muslims in India.

Move is also there to ban non state actors in Pakistan and to arrest those who have violated the law. Such a situation is going to create a strong Pakistan and wavering India where movements to get separated from India would flourish.

Now in March we are just three months away from the expiry of FY 2019. From July 2019 new financial year 2020 would start, so now it is the proper time that government should address economic policies burdened by huge fiscal and current account deficits.

Since its independence Pakistan has witnessed many ups and down in both the economic and political field. With power skirmishes, anarchy and militancy Pakistan has failed to achieve economic and political stability.

A Transparency International report has claimed in 2019 that poor governance and corruption over the past years had cost the nation giving it a position in 2018 at 117. Comparatively Bangladesh stands at 149, India stands at 78 and Sri Lanka at 89.

In 2018-19 fiscal deficit of Pakistan stood at 7% of GDP. In current account the deficit stood at $ 19 billion i.e. -4% of GDP, the highest in its history. GDP growth was witnessed in 2018 at 5.8% but now in 2019 it has been projected by SBP below 4% for FY 2019. Pak Rupees valuation stands at Rs 140 per US dollar.  Public Debt is 86.9% of GDP in which 33.7% is of external debt. In 2018 total debt servicing remained Rs 2.0 trillion as compared to Rs 1.8 trillion in 2017. In this External sector servicing was $ 7. 7 billion, which can be $ 9-10 billion in 2019.

Comparatively, in 2018 Indian economy has grown by 7% with slowdown to 6% in 2019.Its current account deficit was $ 48 billion with -1.7% of GDP. Total Public Debt is 70.2 % of GDP. Fiscal deficit has been pegged at 3.3 percent GDP. Currency valuation of Indian Rupee is Rs 65.11 per US $.

Bangladesh economy in 2019 would grow with GDP growth rate of 7.2%. Its fiscal deficit is around 4% of GDP. Current account deficit would be – $ 1.5 billion i.e. -0.6% of GDP. Its currency rate of Taka is 88 per US$.

In Sri Lanka GDP growth would remain at 3.8% of GDP. Fiscal balance would be -5.5% of GDP. Current account balance is -$ 2.3 billion with -2.7 % of GDP. Its currency rate is 172.4 per US$. Public Debt stands at 79.4 % of GDP

So apart from politics, economically Pakistan stands at the lowest in the region

In view of the massive current account and budgetary deficit that the PTI government inherited, attributable more to the political instability fomented by PTI itself, it was quite evident that the rulers would have to go the IMF for 13th time.

Prime minister Imran Khan with the managing director of IMF Pakistan has moved a step closer in obtaining IMF bailout package of $ 6-8 billion dollars. The managing director of IMF Lagarde in a statement called for ‘decisive policies and a strong package of economic reforms’. Prime Minister Imran Khan himself admitted that his government will sign on to a program of deep structural reforms. That explodes the myth of repeated government claims that it would negotiate the extended loan facility by the IMF on its own terms.

This is what the government has to do apart from getting loan/aid/investment from Saudi Arabia UAE, Qtar and other GCC countries along with China with its CPEC investments.

It is perhaps pertinent to mention that almost all the countries of the world obtain loans to fund their social and development plans as well as tiding over their balance of payment position and the lending institutions like the IMF, World Bank, Asian Development Bank and other international financing entities before extending loan facility to a client do make sure that the country has the ability to utilize those loans productively and also be in a position to repay them within the stipulated period.

Fulfilling those obligations would also require deep expenditure cuts without which the burden will fall on revenue mobilization which would entail substantial hike in taxes in the short term. Imran Khan recent announcement that FBR would be abolished if it didn’t work well is not going to work as to raise taxes there is a need to bring legislation for Agriculture, Services, Wholesale and Retail sectors to bring them in the tax net first of all and this can be done through Parliament only. Secondly restructuring of FBR with its provincial arms needs comprehensive changes and reforms. . Hence there is no escaping the reality that tax recovery now standing at 11-13% of GDP would not move upward as desired. So the biggest priority worth holding now would be to protect the poor and vulnerable from the impact of these adjustments.

The predictions by the international lending and rating agencies also present a very dismal picture about the state of our economy in the next two years. The IMF has lowered its 2019 economic growth forecast for Pakistan and the region by 0.3 percentage points to 2.4 percent before recovering to about 3 percent in 2020. Fitch has downgraded Pakistan’s rating from B to B negative in Decembers 2018 and its predictions for future revealed last week are also not very encouraging. It has predicted that the SBP will have to devalue rupee against US dollar again in the coming months as the currency will remain under depreciatory pressures with weaker external finances. It is also on the cards that SBP would continue tightening of economy through raising interest rates.

It is pertinent to mention that Imran Khan and his party stalwarts have been criticizing and reviling the PML (N) government for excessive borrowing and failing to provide relief to the masses. Ironically after assuming power the PTI government is also pursuing the same course with increased velocity. According to reliable sources the PPP government borrowed an average of Rs.5 billion a day for five years between 203-2018. The PML (N) government borrowed at an average of Rs.7.7 billion per day. The PTI government during the last five months has been borrowing at an average of Rs.15 billion per day.

Within next four months Pakistan has to bear current account deficit of around $ 15-16 billion + $ 9 billion as external debt servicing i.e. around above $25 billion. The soothing area is the remittances of around $ 19 billion that Pakistan can get from its Non residents.

On domestic front it would have to face a gap of Rs 1.5-2.0 trillion that has to be met through domestic borrowings.

Credit to Private sector borrowing has jumped over 92 per cent to Rs600.5 billion during July-Feb22 compared to Rs312bn in the same period last  Conventional banks’ lending doubled from Rs204.4bn to Rs409.8bn during the eight months whereas lending at Islamic banks also jumped to Rs90bn compared to Rs23.8bn last year. Islamic banking arms of the commercial banks also increased their lending to the private sector reaching to Rs100bn compared to Rs84bn last year. Hence this area has shown some interest in business activities.

Pakistan investment rate is 17% of GDP whereas saving rate is 12% of GDP whereas investment rate should be above 20% and saving rate should be above 15%. To do this concessions are required for the business community and raising of savings rates (specifically) for retirees, widows and old aged persons.

CPI or inflation rates have reached to 7% from 4% last year and are anticipated to touch 10% soon. This is going to affect life of low income people very much. How government is going to address this issue is yet to come on surface.