Never in Pakistan’s 70-year financial history have our exports declined for five consecutive years. Never in Pakistan’s 70-year financial history has our current account deficit hit a high of $12.1 billion in one year. Never in Pakistan’s 70-year financial history have we imported goods and services worth $52 billion in one year. Never in Pakistan’s 70-year financial history has our trade deficit hit a high of $32 billion in one year (trade deficit is the difference between our imports and exports).
On top of the historically high trade deficit, the present incurred colossal fiscal deficit is Rs. 1.863 trillion (fiscal deficit is the difference between government’s expenditure and the revenue that it generates). To be certain, the fiscal deficit is the root of most financial ills – and our fiscal deficit, in absolute terms, is the largest ever in our history. For the record, the twin deficits – current account and fiscal – add up to over 13 percent of GDP.
Pakistan’s economy is vulnerable like never before. And a country’s economic security is deeply interlinked with her national security. The three major threats to our economic security are: One; the enormous trade deficit and the impending balance of payment crisis. Two; the fiscal deficit and the impending debt trap. Three; multi-billion dollar penalties from the International Centre for Settlement of Investment Disputes (ICSID) on account of Karkey Karadeniz (the Turkish company that operated a rental power plant); in the London Court of International Arbitration (LCIA) on account of the Independent Power Producers (IPPs) and a ruling against Pakistan in the Reko Diq case.
Imagine, we have paid $50 billion in debt servicing just over the past four years (while the accumulative allocation for defence was $30 billion over those four years). A historically high trade deficit means additional debt. A historically high budget deficit means additional debt. Our current trajectory will take us right into a strangulating debt trap whereby it will become impossible to service the accumulated debt and we would have to borrow more just to repay the billions borrowed earlier. Who is going to lend us those billions to pay back our debt? IMF? The World Bank?
To be certain, the IMF is not just a financial institution it is also a political tool with financial power projection by its owners. Look at the IMF Members’ Quotas and Voting Power: Pakistan’s number of votes is 21,775; America’s number of votes is 831,407. Imagine: Andrew Baukol, America’s representative to the IMF, raises just one hand and 831,407 votes are up.
Back into the IMF’s lap and back to the IMF’s dreaded conditionalities. Remember, the U.S. has veto privileges and a blocking minority. Remember, the U.S. has “near-absolute control of the IMF’s activities”. And yes, the U.S. uses “the IMF to peddle its own agenda”.
Pakistan must take corrective measures urgently. The Ministry of Finance must take corrective measures urgently. Pakistani exporters must be engaged; their problems must be resolved and their stuck-up refunds must be refunded. The import regime must be rationalized (the recently imposed regulatory duties on tooth paste and poultry are too little, too late). The value of the Rupee must be adjusted downwards. And the cost of doing business in Pakistan must be brought down.
The Ministry of Finance must take corrective measures on the budgetary side as well. The power sector loses Rs. 400 billion a year. This must end. The Public Sector Enterprises – PIA, Railways, Steel Mills etc. – also manage to lose Rs. 400 billion a year. This must end. The government’s entire stream of expenditures must be rationalized. Yes, the entire stream of expenditures must be rationalized before burdening the poor taxpayers with additional taxes. Yes, the tax base needs to be broadened but that means adding new taxpayers – and not burdening the existing taxpayers with additional taxes. Yes, the cost of compliance with the tax regime must also be brought down.
Yes, our economic security is under threat – under threat like never before. And yes, our economic security continues to be the most neglected element of our national security.
To be sure, putting economy right is no rocket science. The remedy lies in prioritizing the emerging economic crisis. In sound economy lies the soul of Pakistan’s future and it demands focus, dedication and integrity.
The writer is an eminent analyst who regularly contributes for national and international print and electronic media.
Read 112 times