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Monetary mess

  • Not much to write home about

While everyone would be out to pin them on someone else, but the fact of the matter is that the next government is going to inherit precipitously plunging fiscal numbers. Among these are the following.

$37.7 billion is the current trade deficit, which has reached an all-time high. 39,288 points is where the stock exchange finished last Monday, which is the lowest that it has hit in 2018 and the first time since December last year that it fell below 40,000.

21pc is the number that the depreciation of the rupee’s value with respect to the US dollar has crossed over the past seven months. 128.26 is the record low against the dollar in the inter-bank market that the rupee hit early on Monday morning, after having closed at 121.55 on Friday.

72pc of the GDP, or Rs24.5 trillion, is the total debt on the country right now – also, of course, a record high, or low, depending on how you want to look at it. Rs2,000 billion is the total debt that the rupee fall alone has added over the last eight months.

These are numbing numbers when you look straight at them. But the last finance minister Miftah Ismail’s wants to add a bit of context to the mix as well.

He says that considering the fact that the debt was 64pc of the GDP in 2013, and that the foreign debt has ‘only’ risen by around 2pc in the past five years, relative numbers don’t look quite as bad.

He also points towards the percentage debts of Japan, Italy, Singapore and their likes – all of which are significantly higher than Pakistan’s – to suggest that international benchmarks need to be put into the picture before judging the fiscal scenario.

The external financing needs of Pakistan stood at $21.5 billion (7.1pc of GDP) last year, which are projected to more than double in five years’ time to $45 billion (9pc of GDP) by 2023

Even so, last week Miftah Ismail thought that the then rupee value was a competitive price and that there wouldn’t be any further devaluation. The rupee, of course, touched almost 130 to the dollar on Monday.

And even the former finance minister cannot deny that his predecessor Ishaq Dar’s policy of artificially maintaining the rupee’s value was ‘flawed’ – more like catastrophic, though.

Those who have worked with Dar maintain that he had this infatuation with the number ‘100’ and believed that it was a ‘psychological barrier’. So the argument was that if the rupee’s price remained around that mark – which it did for over four years – the impression would remain that the economy is doing fine.

It is only after the State Bank of Pakistan ran out of reserves to artificially pump the rupee’s value that the currency has come crashing down – not as a thought out readjustment, as the outgoing economic think-tank would have you believe.

There are few things more detrimental to a country’s economy than populism. The budget passed by the last government – which ideally they should never have – is a prime example of this.

Another example is the continued rhetoric in the lead up to the elections that Pakistan won’t be going to the International Monetary Fund for a bailout. Miftah Ismail himself continues to deny it even though that’s precisely why he was in the US in April.

In fact, the upcoming government has been left with little choice to go to the IMF almost immediately after taking oath. That is precisely the plan for the PML-N as well, if it forms the government, which it absolutely expects to. Rest assured, that is what the PTI contingent will follow through with as well, despite their quixotic fiscal ambitions.

That is what the Pakistani contingent pitched in the US, telling Washington that their primary concern about jihadist elements finding safe havens in the country – which should be Islamabad’s primary concern – would further exacerbate if the economy crashes. And of course the way to the IMF’s heart is through the US.

However, what is worrying for Pakistan is the IMF report release recently that maintains that “risks to Pakistan’s medium-term capacity to repay have increased significantly… due to mounting external and fiscal financing needs and declining reserves.”

The external financing needs of Pakistan stood at $21.5 billion (7.1pc of GDP) last year, which are projected to more than double in five years’ time to $45 billion (9pc of GDP) by 2023.

Of course there are multiple factors behind the economic mess that Pakistan finds itself in ahead of the elections. And that’s unfortunately the least mulled offshoot of the multi-pronged tussles and masochistic policymaking that the powers that be indulge in this country.

K K Shahid

The writer is a member of staff

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