NationalVolume 13 Issue # 20

Five years of disaster

The Pakistan Muslim League-Nawaz (PML-N) government has completed its five-year term but the country will reel form mismanagement for decades to come, as it faces the worst economic crisis of its history. The current account deficit has widened to 5.3 percent of the Gross Domestic Product (GDP), or $14.035 billion, in the first 10 months of the current fiscal year of 2018, as imports continue to outstrip exports, while foreign inflows from other sources remain insufficient to finance the gap.


The economic situation has reached an alarming level and even the military establishment is worried about it. In a recent interaction with journalists, Army Chief Qamar Javed Bajwa expressed his concern about the economic policies of former Finance Minister Ishaq Dar. The economy will be the toughest challenge for the next government. According to the State Bank of Pakistan (SBP), the current account deficit has increased by 50 percent from $9.354 billion in the corresponding period last year. Exports were recorded at $20.558 billion in July-April, compared with $18.141 billion in the corresponding period last fiscal year. Imports stood at $45.560 billion in July-April, compared with $38.912 billion a year ago.


Analysts say growing profit repatriation by foreign firms operating in Pakistan also increased the current account gap and fear the current account deficit will further widen as imports are picking up and capital inflows are likely to remain stagnant. The economy is extremely vulnerable to external shocks due to the rising current account gap and foreign debt servicing. External debt servicing is expected to reach $8.5 billion in fiscal year 2017/18. Pakistan’s external debt and liabilities were projected to rise to $95-96 billion by June-end, from $83 billion in the previous year. External debt and liabilities reached $91.8 billion by March-end. Total foreign exchange reserves on May 11 were $17.067 billion, out of which $10.798 billion were the net reserves with the central bank and $6.268 billion was held by commercial banks.


Pakistan’s public debt reached an all-time high under the PML-N government. Its net public debt has crossed the Rs18.28 trillion mark, rising about 35pc during the tenure of the ruling party. The volume of net public debt was Rs18,277.6 billion on September 30, 2016. Total public debt stood at Rs13.48tr at the end of fiscal year 2012-13. The major contribution to the increase in net public debt came from an almost 40pc rise in domestic debt, which rose from Rs8.686tr at the end of 2013 to Rs12.14tr at the end of the first quarter of fiscal year (FY 2016-17). In the same period, foreign debt posted an increase of 28pc and went from Rs4.796tr in 2013 to Rs6.14tr on September 30, 2016. Every Pakistani now owes about Rs130,000. The figure was Rs90,772 in 2013, when the PPP completed its term. It was Rs80,894 in 2012 and only Rs37,170 in early 2008. Losses of public sector enterprises have exceeded Rs1.2 trillion and circular debt of the power sector has reached over Rs1 trillion. Long power cuts have started with the advent of the summer. The situation is worse than what Pakistan faced in 2013, when the Pakistan Muslim League-Nawaz (PML-N) government came to power.


Pakistan’s external debt will climb to $103b by June 2019. In its last assessment, the International Monetary Fund (IMF) put Pakistan’s gross external financing needs at a record $27 billion for the next fiscal year and warned that arranging the financing at favourable rates would be a challenge due to risks to the country’s debt sustainability. For additional borrowings, Pakistan’s external debt would jump to $103.4 billion by June 2019, up from this June’s projected level of $93.3 billion. Pakistan’s public debt would remain higher than the limit prescribed in the revised Fiscal Responsibility and Debt Limitation Act. Certain tables in the report, which the IMF withheld in the past, show the adverse implications of the PML-N government’s borrowing spree. The policy of building foreign currency reserves through expensive loans and ignoring the export performance has come to haunt the policymakers. The IMF said the elevated current account deficit and rising external debt servicing, in part driven by the China-Pakistan Economic Corridor (CPEC)-related outflows, were expected to lead to higher external financing needs.


Tall claims of PML-N leaders of a loadshedding-free Pakistan crashed when a nine-hour outage hit the Punjab and Khyber Pakhtunkhwa on May 16. Technical glitches at the Tarbela power plant led to the worst loadshedding in the country. Pakistan still faces a power shortfall of over 6,000 megawatts. According to a new schedule, urban areas face six to eight hours of power cuts while rural areas suffer 12 to 14 hours of loadshedding. Almost the same situation existed in 2013, when the government had come to power. Unannounced and unscheduled loadsehdding in the country has increased as most of the country sizzles in the scorching heat. The circular debt has risen to over Rs1tr after the PML-N government paid Rs480b to Independent Power Producers (IPPs) after coming to power in 2013. The price of electricity has almost doubled in the five years.


When the PML-N came to power, the biggest problem of Pakistan was terrorism. The issue has been resolved to a large extent but the government cannot claim its credit. It was not even willing to launch a military operation against the Taliban, but the army decided to take a decisive against the militants and it has almost purged the country of them. Widespread corruption, large fiscal deficits, low expenditure on education and health, electricity shortages, high inflation, rising prices, soaring unemployment and low economic growth were other issues but it failed to address them. All challenges have compounded after years of inaction and mismanagement. The next government will have to face even bigger challenges and it would have to take tough decisions to put the country on the path to progress