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Whether Uncertainty has gone?


Imran Khan Government has completed its 100 days with lot of claims but it looks we are still standing at the fronts of uncertainties.

On 30th Nov PM in his address highlighted his claims that look impressive. He stressed for job creation strategy for the youth with target of creating 10 million jobs within 5 years. He stressed for revival of manufacturing sector with rapid growth of SME sector. He stressed for policy framework and to build 5 million houses. He stressed for the boost of tourism industry. He stressed for raising tax revenue and reform FBR structure. He stressed for making Pakistan a business friendly country. He stressed for the transformation of PSE’s like PIA Steel Mill Railway in to profit making institutions. But in lump sum these are the plans for his five years and not as achievements for preceding 100 days.

With these tragtes PTI now intends to move forward but that would require competent teams to frame and implement policies.

Still these green lights were on when two bombs fell on the markets, one in form of touching increase in devaluation i.e. Rs 145 per dollar and other also in increase of SBP prime rate by 150 bp boosting inflation above 10% in next few months (current inflation is around 7-8 %) with growth in GDP forecasts as 3-4%. Worldwide no body and no country are making decisions like increase in their interest rates so harshly. This has made, Pakistan as another addition to the list of those countries with poor central bank management. To nullify these developments petrol prices have been reduced by Rs 2/- per liter.

No doubt Pakistan is a rich country in its resources and manpower. Only it requires proper management and governance that are missing due to obvious facts known to everyone.

With lack of proper governance and with no clear road map it suffered a lot since its inception. Basically non political governments ruling 43 years out of 71 years of its history have remained regimes of status quo stressing for stabilization (i.e. to Control deficits) whereas political governments came with long term plans that always disturbed deficit numbers.

Major threats, Pakistan is now facing, publicly are: creeping poverty, unemployment, poor literacy rate, high population growth rate, and poor health care facilities for Pakistanis.

The question is that why Pakistan’s economy did not improve over the years whereas other nations continued tightening their belts. These nations such as, China, Malaysia, Korea, Singapore, Thailand, etc. which got independence after Pakistan are now enjoying a comfort of life whereas Pakistan’s economy is still struggling to keep afloat. The answer seems to be quite straight forward.

The fact is, Pakistan never got the intelligent leadership with its continuity, which could save the sinking ship. Poor governance is another chapter of this sad story. Moreover, Pakistan has been unable to muster the muscles of its talented people. Add to the injury, ill-educated people have always been brought forward to drive the economy. Last but not least the political instability has also caused a great damage to the health of the economy.

Pakistan’s public debt is now standing more than 86% of GDP (Rs 29,861 billion + Rs 2,854 billion increased on 30th Nov due to devaluation of PKR making total size as Rs 32,715 billion)) with falling rate of PKR. The root cause of these evils has been the persistence of large fiscal and current account deficits. So these two deficits are the main reason of the sad story.

How to correct them are the major responsibilities of all institutions in Pakistan with particular lead by Federal Government and State Bank of Pakistan. Currently the current account deficit has come down to $ 4,840 billion in July –Oct 2018 from $ 5,072 billion in July-Oct 2017 but this is not enough and may have happened due to falling oil prices than can go up again and also due to PKR devaluation.

Currently the economy is flying on one engine and that engine is importing sectors, whiles the second engine —exports — is lagging. Greater exchange rate flexibility can help rectify this imbalance, but beyond that it can create increase in inflation as well for the short term with mainly public as its sufferers. Here the government will need to engage with the exporter community more proactively to develop the plans with which to revive exports.

So far only Saudi Arabia had given firm commitments for providing $6 billion lifeline. The commitments from United Arab Emirates and China are still unclear. There is high possibility that China may rollover its $3 billion safe deposits that are due by end of this fiscal year. Pakistan’s talks with the IMF for a bailout package have also failed, as both the sides could not converge on the main thorny issues including provision of data related to Chinese public and publically guaranteed debt.

The government is wasting a lot more time on deciding whether to go to the International Monetary Fund (IMF) for a bailout, which holds the key towards the dreamed economic turnaround ahead. The business circles at the moment are saying “It remains a tough time to do business.”

Initially, foreign and big businesses had anticipated Pakistan attaining a bailout by mid-December 2018 and planned their new projects and investment accordingly. However, Prime Minister Imran Khan’s resolve to arrange over $12 billion, required to run the country, from friendly countries has kept Finance Minister Assad Umar on hold for inviting the IMF team to discuss the details for a bailout, which has now delayed possibly till January 2019. The delay also put new investment on hold. 

A tough road lies ahead for Pakistan as the IMF has proposed harsh conditions for the bailout; a second round of energy price hike, further rupee devaluation and interest rate hike, etc. The finance minister has said the country would not avail the bailout if conditioning remains stringent. In the latter case, the business community has inquired the government to announce its plan ‘B’ to deal with deficit part of balance of payment.

“Key trends are still widening of the current account deficit and a still vulnerable fiscal framework. Realizing the budgeted revenue requires significant efforts.”

So these words are enough for our caution while we are busy in playing game of putting blame of everything on corruption and on the past.  SBP is looking a branch of Ministry of Finance though Assad Umar denies this.

With zigzags and U Turns with no timely decisions, nobody can run the economy of Pakistan. Hence for that immediate reforms and steps are required to create certainty on overall economic scenario.


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