FeaturedNationalVOLUME 19 ISSUE # 12

Political slogan mongering and economic realities

The caretaker government has been persistently claiming that it has improved the economic situation but ground realities tell a different story. Last week Caretaker Finance Minister Dr Shamshad Akhtar stated that the interim government’s “proactive measures” to encounter external and domestic challenges have stabilised the economy. She added that the process of transforming the economy is underway in the country, but acknowledged that structural reforms in every sector take time to show results.

Dr Shamshad Akhtar mentioned that the government has taken concerted action to combat currency smuggling and narrow the difference in dollar rates between official and open markets. She also highlighted that the government has undertaken several initiatives for the betterment of the country. The trade deficit narrowed by 3.6 per cent to $1.3 billion in December 2023 compared to $1.9bn in the same period last year, showing good progress. Additionally, she expressed optimism that the government’s efforts would lead to an expansion in export potential and the export market.

The minister also claimed that the government has successfully tackled the external and domestic challenges. Dr Akhtar, while advising FPCCI members, suggested that they should consider turning to the Pakistan Stock Exchange (PSX) for debt purposes instead of approaching banks. She lauded the performance of the PSX and mentioned that the benchmark KSE-100 index gained 1,924 points, closing at 62,451 points as of Dec 29, 2023. Simultaneously, the market capitalisation of PSX increased by Rs334bn, settling at Rs9.063 trillion by the end of Dec 2023.

However, contrary to the government’s claim, the economy remains in deep trouble. The dollar-rupee parity is a see- saw game as currency experts have warned that the exchange rate may face shocks in March. According to them, the inflows of dollars are much below market expectations, and the third quarter’s lackluster economic performance will determine the outlook for the last quarter and the entire fiscal year.

Both remittances and foreign direct investment (FDI) have fallen significantly short of anticipated levels. Remittances during the first half of the fiscal year were six per cent lower, which is a cause of concern for the government.

In the previous fiscal year FY23, remittances were 25pc lower than the preceding year, resulting in a loss of $4 billion. The current fiscal year’s remittances are even lower than the previous year. The World Bank, in its report issued at the end of last December, predicted total remittances at $22bn for FY 24. There is also a consensus among market players that, due to the general elections, inflows would decrease further in the coming days, negatively impacting overall inflows for the remainder of the current fiscal year. Businessmen have reposed great hope in the Special Investment Facilitation Council (SIFC), but higher inflows during the current year seem unlikely. The SIFC has set a target of $100 billion in investment inflows over the next three to five years, and it will be a miracle if the target is achieved.

Of special concern in this regard is the fate of the last tranche of $1.2bn from the International Monetary Fund (IMF), which will be decided in March. According to experts, it will be an onerous challenge for the coming new government to renegotiate the terms of the loan and assure the IMF about the continuation of the current economic policies.

The task of the next government has been made more difficult by the wild promises being made by various political parties to win voter support. Major parties like PML-N and PPP have announced outlandish economic benefits for the people, such as providing 300 units of free electricity for the general public housing units and subsidies on gas. As things stand, the general public has been facing sky rocketing power and petrol prices and complex supply problems because the caretaker government has mindlessly increased electricity and gas prices several times to meet IMF conditions. The caretaker finance minister has repeatedly stated that Pakistan needs another bailout package to sustain economic growth. But political slogan-mongering is queering the pitch for future talks with the donor agency.

The most critical issue in the upcoming IMF review revolves around another upward revision of energy prices, encompassing both electricity and gas. The IMF insists on fundamental reforms to stop the relentless growth of circular debt in power and petroleum sectors but the concerned authorities are clueless as to how to go about it.   It may be added here that the previous government obtained the standby loan as a transition, providing a temporary reprieve before tackling more intricate reforms. Ensuring debt sustainability is going to be the primary concern of the next government as it is a prerequisite for the programme’s IMF board approval. How the government solves the issue remains to be seen.