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Pakistan staring Down the Barrel

The warning has been sounded before but this time it seems Pakistan’s economy is headed for the rocks. Even the smartest economists can’t see a way forward. One suggestion almost impossible to implement came from IMF chief Kristalina Georgieva. “Please collect more taxes from the wealthy and please protect the poor people of Pakistan,” she implored, and there was no mistaking the desperation in her voice. Some 40 per cent of Pakistanis — 95 million — now are estimated to be below the poverty line.

Pakistan won itself a brief respite with a conditional new $3-billion IMF loan in July. But that’s only a temporary fix and the country is no closer to resolving its deep structural problems that have been aggravated by what experts call the Triple-C crisis — Covid, the Ukraine conflict and climate change. Last year’s catastrophic floods led to economic losses of $30 billion, according to the UN.

Pakistan has gone through 22 IMF loans or about one every 3.5 years. It’s basically functioning on foreign loans, an unsustainable model only resulting in more borrowing to service the loans. Pakistan now holds $126.3 billion in external debt and liabilities, of which, 30 per cent is owed to China.

“We’ve been postponing the inevitable rather than working to resolve the underlying weaknesses in the economy,” says Dawn newspaper columnist, Khurran Husain. “Productivity loss means our economy is increasingly unable to fetch dollars in quantities sufficient to pay for its own import requirements.

Put bluntly, Pakistan doesn’t produce enough to earn the dollars needed to pay for its required imports. Vital component imports were halted earlier this year because Pakistan hadn’t enough foreign exchange to pay for them. Lacking parts, the auto industry couldn’t manufacture cars or bikes while the textile industry couldn’t import dyes. These industries are back in action again but only after a fashion. Only 5,909 automobiles were produced in August, down from 8,980 in the same month last year, and 17,899 in August 2021. Even that performance, though, looks almost good compared to April sales which were a dismal 2,844 cars, down from 18,625 in April 2022. By contrast, in April 2023, India’s car sales totalled 331,509, giving an idea of the economic gap between the two countries.

The gloom travels all the way down to the lowest levels. While the Pakistan rupee has picked up slightly from a lifetime low, it’s still at PKR 290.50. Putting 40 litres in the car tank costs a gigantic PKR 13,240. Power, too, has become extremely costly. Adding to the woes, inflation is over 30 per cent and dollar remittances from non-resident Pakistanis have fallen steeply. The Human Development Index puts Pakistan in 161st position out of 185 nations. Pakistan ranks among the 25 countries with the lowest human development in terms of health, knowledge and standard of living globally.

Seeking handouts

It’s hardly surprising the Pakistan Army is leaping into the economic fray, though they might have been smarter to let the civilian politicians carry the can. Army chief Asim Munir has done the begging-bowl rounds of the Gulf countries, asking for unprecedentedly large handouts — he calls them investments. According to the army chief, Saudi Arabia’s Prince Mohammad bin Salman’s promised $25 billion while the UAE ruler promised $10 billion. Munir insists Qatar pledged $25-billion. One Pakistan paper says he hopes to pick up “investments” of $75-100 billion. Whether these investments materialise is another matter. The army chief also says he expects the Gulf sheikhdoms to invest in agriculture so he’s warned large tracts of land will be taken over and levelled to allow foreign investors to get into large-scale cultivation.

Pakistan economists now point to Manmohan Singh’s 1991 reforms when talking about how India pulled out of the economic mire. But it seems unlikely such a solution would work in Pakistan.

It might be time for the Pakistan army to realise it’s greatly to blame for the country’s economic crisis as too much is spent on arms, bleeding the economy. Would this be the time to make a peace of sorts with India? Two-way trade and investment might give the economy the boost it’s unlikely to get otherwise. Ideally, open the borders for tourists and ensure their safety. Pakistan’s Gilgit-Baltistan has spectacular places like Hunza. But Pakistan needs de-Talibanisation before turning into a tourist paradise.

Yes, this is pie-in-the sky dreaming. But the world is moving on and it’s time that India and Pakistan pulled themselves out of this 75-year-old rut.

Source : Bussiness Line