The economy of a state is like a heart to a human body. If the heart is affected, the body’s physical performance gets slower. In the same manner, if the economy of a country is in recession, the entire nation is at the receiving end.
Unfortunately, Pakistan is facing unprecedented financial and economic challenges. Middle of the historical inflation, serious foreign exchange crisis, and soaring unemployment leading towards poverty. If somebody asks what is the greatest challenge the country faces today, no doubt, the answer will be ‘the economy.’
Short-term economic policies and financial mismanagement by successive governments have badly messed up the economy, leaving probably very few choices to treat the illness in a shorter period.
Almost all previous governments were trying to solve the economic and financial problems through the International Monetary Fund (IMF) programs or external-internal loans. The IMF programs, or let us be more specific ‘the dollars,” come with stringent conditionalities, directing the governments to take measures for addressing serious economic issues.
In the present 9-month Stand by Arrangement (SBA) program of 3 billion dollars, which was approved on July 12, 2023, the fund demanded Pakistan launch structure reforms, privatize State-Owned Enterprises (SOEs) such as PIA, Railways, Steal Mills etc, zero subsidies to energy and other sectors, market-based exchange rate and tight monetary policy.
The fund has asked the government to reduce the power sector circular debt, around Rs. 2300 billion. To achieve this task, the rate of electricity per unit has been increased. The domestic electricity rate per unit is between Rs 35-50 in addition to eight different taxes and duties. The IMF directed the government to generate extra revenue from petroleum products, which is why the Rs 50 Petroleum Development Levy (PDL) was imposed along with many other taxes to increase revenues and reduce the Current Account and budget deficit. The fund has also asked the government to reduce the Gas sector circular debt (around Rs. 1500 billion) by jacking up the prices. The inflated bills received by the consumers in the last two months were due to the IMF program. The devaluation of the rupee against the dollar has also increased the prices of various products and the energy sector. The only way to stabilize the rupee is to have more dollars in the country. As mentioned above, one of the conditionalities of the Fund was that the currency market, not the government, would determine the rate of the rupee against the dollar. In short, the present price hike and public miseries are due to the IMF program. However, instead of cursing the financial institute, we should set our house in order. When a government borrows money from local or international banks, it must fulfill lenders’ requirements.
Both domestic and foreign debts have a huge burden on the public. Today, the country has Rs. 77104.1 billion debt liabilities. In the current financial year (23-24), the outgoing government presented a Rs. 14.46 trillion budget (approximately 50 billion US dollars). At the same time, the revenue target was set at around Rs. 9200 billion (we don’t know whether, at the end of the financial year, this target will be achieved or not). The figures indicate that the country will require Rs. 6000.46 billion from other sources, including loans from various international financial institutions (IFIs) or friendly countries, to meet the budget deficit.
Continuing current account and budget deficits have always forced the country’s economic and financial managers to borrow loans. Because of this loan-acquiring practice, the country is in a “Debt Trap,” getting new loans to repay the previous one.
The debt figures of the country are alarming. The total domestic debts are Rs. 38808.9 billion, while the foreign loans stand at Rs. 22030.9 billion.
In June 2023, the country’s external debts were 127.3 billion US dollars, while in June 2006, the total foreign loan liabilities had been 37.2 billion UD dollars. If one makes a simple mathematical calculation that in 60 years, the foreign debts were only $ 37 billion, while from 2006 to 2023, just in 17 years, a huge amount of $ 108 billion was added to the foreign debts. It means every year, the country has been borrowing around 6 billion US dollars. It has been reported that the government borrows Rs. 14 billion daily to meet its expenses. This means that borrowing is the only solution with the various governments failing to craft a financial discipline in the governance and administrative system. Debt is an Achilles heel to our economy, which has trapped the country to pay billions of dollars every year, fearing imminent default.
In the current year, the government must pay $ 24.6 billion to the lenders as a principal amount or interest on the borrowed money. It means the government needs $ 2 billion monthly for the payment; failing to do so can lead the country to default.
The country needs dollars. Dollars can come by reducing imports and increasing exports. To increase exports, we need to improve the quality of our products. Our exporting products must compete with the international markets and attract buyers. New technologies should be introduced in agriculture to increase per-acre yield and other industries. We must focus on the Informational Technology sector, which can attract foreign direct investment and provide jobs to the youth.
The IT sector can generate 5 to 10 billion dollars a year. We should immediately privatize all State-Owned Enterprises to reduce the financial burden. We must reform the energy sector and find alternative sources like solar, wind hydel power, etc. Since we need dollars, overseas Pakistanis have contributed to the forex reserves. Therefore, we must encourage them to bring back money to Pakistan. Continuity of policies is key to investment and economic growth, so all political parties and stakeholders must agree on the economic agenda; if one political party moves out of power, the policies must remain intact. Our tax on GDP is only 10.3 percent; we need to add new taxpayers. Tax evasion and smuggling must be discouraged. Along with these measures, we must bring permanent political stability to the country, without which nothing could be achieved.
The author is a known TV journalist and anchorperson with 27 years of Print and Electronic Media experience. He has played an essential role in establishing TV news channels in Pakistan. He hosts a prime-time political talk show, “BAYANIAH,” on NEWSONE TV. He tweets @waheed_h35