FeaturedNationalVOLUME 18 ISSUE # 08

How long will we make excuses for poor management?

The coalition government blames policies of the previous government and devastating floods for the poor state of affairs of the economy. The previous government had held the present rulers and the pandemic responsible for the economic mess in the country. It is a pity that every government blames its predecessors for all ills in the country but does not take practical measures to put the country on the path to sustainable development.

The government claims that it has taken “hard” decisions to save the country from default. It has withdrawn subsidies on petroleum products and electricity provided by the previous government of Prime Minister Imran Khan. It has overburdened the common people with unprecedented price hikes. However, the government has failed to create an impression in the public that it is serious about the situation and wants to curtail its expenses. A large cabinet, its foreign tours and frequent front-page advertisements in newspapers show Pakistan is not facing any economic issue and all is well. However, all is not well for Pakistan and its people.

Pakistan is facing serious issues to meet its international obligations while its people have been facing the worst time of their lives after prices of food and essentials have peaked to unprecedented levels in the country. The State Bank of Pakistan’s foreign exchange reserves hit an eight-year low at $5.576 billion during the week ended on Dec 30, 2022. However, the government is hopeful about the revival of the IMF package, which will open the door for financial assistance from other countries and institutions. The declining reserves have led to sharp devaluation of the rupee against the US dollar, which also adds to inflation.

According to the Forex Association of Pakistan, Pakistan is facing a shortage of dollars owing to smuggling and trade with Afghanistan. It says, “We are losing close to $2 billion to Afghanistan on a monthly basis. The government must ban trading in dollars with the country. Trade should be in the local currency or a barter basis. Each traveller carrying approximately just over $2,000 a day (on average) is causing Pakistan a loss of around $1 billion a month.” Pakistan’s foreign exchange reserves may further decline as the country has to pay back foreign debt in the coming months.

On the other hand, remittances sent by overseas Pakistanis declined by 14pc in November this year. The inflows fell by 9.6pc during the first five months of the current fiscal year. The data released by the State Bank of Pakistan shows that remittances continue to fall and declined to $2.1 billion in November from $2.5bn during the same month last year. The inflows declined by 5pc compared to $2.215bn in October this year. During July-Nov FY23, the remittances fell by $1.279bn (9.6pc) to $12bn from $13.286bn during the same period last fiscal year. An artificially low dollar rate in the interbank market is the main reason behind the decreasing remittances. As a result, overseas Pakistanis are sending money to the country through non-banking channels.

Pakistan’s trade deficit has shrunk by one-third to $17 billion in the first half of the current fiscal year, not because Pakistan’s exports are increasing but it has curbed imports, which are still large enough to overburden its economy. From July to December 2022, the gap between imports and exports was recorded at $17.1 billion, down by $8.3 billion, or 33pc, compared to the same period of last year, according to the Pakistan Bureau of Statistics (PBS). Imports amounted to $31.4 billion during the Jul-Dec period, down by $9.2 billion, or 22.6pc. According to the data, exports stood at $14.2 billion, down by $876 million, or 5.8pc, during the Jul-Dec period. The annual export target of nearly $38 billion looks impossible now. The declining exports should worry our policymakers, who provided hundreds of billions of rupees in subsidies, low mark-up loans and tax exemptions to the industry, while the rupee depreciated by almost 100pc in the past four years.

As the government restricts imports through administrative measures, the Federal Board of Revenue has reduced its tax collection target by Rs170 billion and now estimates to fetch Rs7,300 billion by June 30, 2023, against an earlier target of Rs7,470 billion.

However, people are not interested in statistics. They are worried about prices, which have peaked in recent weeks. Inflation has jumped by nearly 31pc as compared to last year. According to the Pakistan Bureau of Statistics, prices of 51 essential items increased in the previous week. The price index for the week ending on Jan 5, posted an increase of around 1.1pc, which was accompanied by massive surges in the prices of some commodities. The sensitive price index (SPI) has been in the double digit since Feb 2021. Prices are projected to increase in the coming weeks.

Undoubtedly, Pakistan and its people are facing serious issues, which have been compounded by inaction by successive governments. The recent floods and political instability have limited the government’s ability to solve issues. Pakistan needs political stability and consistency in policies to achieve its economic goals and provide basic amenities to its people.