The writer is an
analyst and the
President of All
Once Pakistan was one of the fastest-growing economies in South Asia for most of the period between 1960-90. Today, it has Asia’s second-fastest inflation that the country’s central bank is struggling to tame. The history of loans the country has taken suggests his predecessors perhaps lacked economic wisdom. Unfortunately, Pakistan has developed a vicious debt culture and has been a member of the World Bank since 1950 and has received $40 billion in assistance since then. Pakistan’s relationship with the IMF dates back to 1958 and IMF has lent money to Pakistan 22 times during the last 60 years and they all come with some stringent conditions. Asian Development Bank says that it has committed 723 public sector loans, grants, and technical assistance totaling $37 billion to Pakistan since 1966 with the ongoing sovereign portfolio in Pakistan, including 48 loans and three grants worth $8.42 billion. The Islamic Development Bank has also provided Pakistan with total funding of $14.6 billion for 429 projects, of which 378 have been completed and 51 are active. Apart from these international lenders, several friendly nations like China and the Gulf countries have also been giving financial aid to Pakistan and have linked this support to negotiations with the IMF. Last month, China agreed to roll over $4.2 billion in debt, providing a major financial relief to the government. The finalization of new loan deals with Saudi Arabia, China, and the United Arab Emirates (UAE) remains undecided due to the ongoing IMF talks as Pakistan awaits a rollover of $2.3 billion Chinese commercial loan. Beijing has placed a condition for the renewal of its $2.3 billion loans as it wants that its loans could not to be used for any purpose and should only be treated as part of the reserves because of Pakistan’s weakening financial situation. Pakistan will have to pay back $100 billion to China by 2024 on the total investment of $18.5 billion which China has done in the form of bank loans in 19 early harvest projects under the China–Pakistan Economic Corridor (CPEC) which has the potential to transform the Pakistani economy although with the fear this transformation could come at heavy price.
Default means shortage of diesel, petrol, life saving drugs, cooking oil, load-shedding, a crash of the Pakistani rupee, the stock exchange, social unrest followed by violent protests-and deployment of troops. We must avoid this vicious cycle-at all costs.
The State Bank of Pakistan’s (SBP) latest debt bulletin shows how the total debt and liabilities increased to PKR 53.5 trillion, a surge of PKR 23.7 trillion or nearly 80 percent when compared with the statistics before the Pakistan Tehreek-e-Insaf (PTI) came to power with Imran Khan in 2018. From 1947 to 2018, a period of 71 years, we took on debt amounting to Rs30,000 – and then in 2018, when the PTI formed the government, national debt and liabilities stood at Rs30,000 billion. By 2022, the same had grown to Rs51,000 billion, in four years we took on an additional Rs21,000 billion. Between 1960 and 2018, for a good 58 years, GDP steadily grew from $3.75 billion to $315 billion. In 2019, for the first time in 58 years, GDP actually fell to $297 billion. The following year, GDP fell again to $262 billion. Circular debt in the electricity sector grew from Rs1,100 billion in 2018 to Rs2,500 billion by 2022. In 2018, at the end of the PML-N-led government, circular debt in the gas sector stood at Rs350 billion, but by April 2022, at the end of the PTI-led government, the same had grown to Rs1,500 billion. By the end of the current fiscal year, our trade deficit is estimated to hit a high of $50 billion, the highest ever since 1947. According to the UNDP’s National Human Development Report (NHDR) for Pakistan, which was released last year, the richest 20% of Pakistanis hold around 50% of the national income. On the other hand, the poorest 20% hold just 7% of the country’s national income. Despite these glaring inequalities, the NHDR had estimated that over 37% of public expenditure benefits the richest people in the country, whereas less than 15% of public expenditure reaches people in the poorest income category. Moreover, the biggest beneficiary of varied tax breaks, subsidies, and preferential access to capital and other public services in Pakistan is the corporate sector. The feudal families, which comprise just over 1% of the population, own around 22% of all arable farmland. According to the UNDP’s calculations, the total dollar amount of privileges provided to Pakistani elites, the corporate sector, feudals, powerful politicians and the military adds up to around 6% of the country’s economy. It is hard to justify spending so much of the country’s scarce public sector funding on the nation’s elites when Pakistan’s human development indicators are the worst in South Asia, and when Pakistan was ranked 153 out of 156 countries on the World Economic Forum’s Global Gender Gap Index this past year.
Bad politics always results in bad economics. Governments cannot deliver without teamwork. And, when teamwork happens things change for good for the people. Unfortunately, due to bad governance, Punjab has seen seven Inspectors General of Police come and go with an average tenure of 6 months; five chief secretaries with an average tenure of 8 months. At the federal level, there have been four finance ministers with an average tenure of 10 months each. There’s been eight FBR chairmen and four BOI chairmen. Pakistan has been ranked No. 1 in the world with the longest school closure and has been fully closed for 9-time about 94-week in 3-year, the longest school closure in the world. Prolonged school closures continue to jeopardize the futures of millions of children in Pakistan. There’s a bloodbath going on at the Pakistan Stock Exchange where capitalization has dropped by Rs1 trillion. The Pakistani rupee has lost Rs25 against the dollar over the past 2 months. PTI has left behind an Rs5 trillion budgetary deficit, the highest ever in our 75-year economic history. PTI is leaving behind a $45 billion trade deficit, the highest ever in our 75-year economic history. PTI has left behind subsidies on petrol and diesel amounting to Rs1,400 billion, a hundred billion higher than our annual defense budget. PTI has left behind the State Bank of Pakistan with a mere $10 billion in foreign exchange reserves.
Diplomatic failure was also one of the main causes of the failure of the PTI government. Important states – including the United States, China, and Saudi Arabia – moved away from Islamabad. There’s a global movement towards ‘evidence-based foreign policymaking’ but the PTI ran an emotion-driven foreign policy topped up by seriously imprudent outbursts by the prime minister himself. The US suspended Pak-US strategic dialogue and downgraded its diplomatic relations with Pakistan by not appointing a full ambassador since 2018. Early on there were anti-CPEC statements from PTI cabinet ministers. Then came the PM’s speech at the UN General Assembly with the PM’s oratory on forming a ‘new bloc within the Islamic countries, resulting in Saudi Arabia pressing Pakistan to return $1 billion. In April 2021, the European Parliament called on the Commission and the European External Action Service to immediately review Pakistan’s eligibility for GSP+ status. Now, we need the IMF’s dollars plus the IMF’s monitoring program which opens up billions of dollars from Saudi Arabia, China, the World Bank, and others. The IMF, as a matter of principle, does not deal with interim governments. So if there is an interim government, Pakistan will most probably default. We must avoid default at all costs. Default means a shortage of diesel, petrol, life-saving drugs, cooking oil, load-shedding, a crash of the Pakistani rupee, the stock exchange, social unrest followed by violent protests-and deployment of troops. We must avoid this vicious cycle at all costs. In Pakistan, every long march costs around Rs 800 billion, or an equivalent of $4 billion. Pakistan is a highly indebted country with a low growth rate, and this explains why financial planners need to keep tightening the fiscal belt to qualify for more international loans. Yet, there are many other countries within our region, and beyond, which have faced similar economic challenges but have done a much better job addressing the basic needs of their citizenry. Politics is the most concentrated expression of economics. Bad politics and good economics cannot coexist. Bad politics always results in bad economics.