As Pakistan has approached the international Monetary Fund (IMF) for the 23rd time in the 75 years of its existence, by the very first week of January, Pakistan had only $4.3 billion USD, enough only to pay for a month of imports. Inflation was at a horrifying 24%, and Pakistan’s long-term debt stands at $274 billion, while the country’s GDP hovers at around $375 billion. At the time of writing, the exchange rate was 310 PKR to 1 British Pound, and the State Bank of Pakistan confirmed that the Rupee had plummeted by 9.6% against the US Dollar on January 26th after the artificial peg imposed by the government was lifted in line with IMF regulations.
While the populist Mr. Khan did his best to economically isolate the country and brought the country tumbling from the 24th largest economy in 2016 to the 47th rank, Shehbaz Sharif appointed an accountant from his own family for the top finance job reserved for economists, who has in his own words, left everything to the ‘mercy of the Almighty.’
As Pakistan seeks $1.1 billion, part of its $6 billion bailout package from the IMF to avoid default, economic pundits have cautioned that it would not be very long that Pakistan becomes the next Sri Lanka. A plethora of vessels can be seen lining the Karachi port with crucial raw materials for the country’s industries because importers can no longer secure dollars or letters of credit from commercial banks to pay for the imports. It was only this week that Pakistan faced a rather embarrassing electricity outage as the electricity supply failed to restart after a cost cutting technique, leading to a loss of $70 million to the textile industry alone.
The seriousness of the crisis can be reflected from the fact that the government decided to auction a Pakistani embassy property in the US, and it is forcing wedding halls and shopping malls to close early, hoping that this will help the country conserve $273 million through a reduction in energy imports. Similarly, government departments in the country have been tasked to reduce their electricity consumption by 30%. However, these half-baked measures are nowhere near enough to help the country survive the economic catastrophe that is upon us.
While the coalition government and the opposition engaged in a vigorous game of ping pong in attributing blame over the origins of the economic crisis to each other, it is vividly evident that neither of them understand the gravity of the situation.
While the populist Mr. Khan did his best to economically isolate the country and brought the country tumbling from the 24th largest economy in 2016 to the 47th rank, Shehbaz Sharif appointed an accountant from his own family for the top finance job reserved for economists, who has in his own words, left everything to the ‘mercy of the Almighty.’ Mr. Khan too, shuffled finance ministers four times in three and a half years and did not have any coherent trade and investment policies. Similarly, alongside a $6 billion loan from the IMF over the last four years, Pakistan has borrowed $10 billion from Saudi Arabia, the UAE, Qatar and China. However, neither of them are totally to blame for Pakistan’s economic vulnerabilities.
Pakistan’s economic malaise is a product of years of economic mismanagement, having the wrong model of economic governance and favoring short-term political gains over much needed economic reforms. Neither truly understand that it is not the time for the economics of partisanship. Today we are facing an unprecedented crisis that is the brainchild of all of the state’s elites, who deliberately undermined the system of democratic governance to further advance their self-interests. Domestic political instability and deep polarization of the Pakistani socio-political sphere by populist elements, coalescing with state machinery to subvert democratic norms and institutions and ineffective governance are all to be blamed.
While the emerging economies of Asia have an economic model based on investment in capital, Pakistan’s economic framework is aid-based, relying repeatedly on ‘peanuts’, as Zia-ul-Haq once called them, from international powers and friendly countries. Pakistan’s security concerns may explain its economic alliances and budgetary spending distribution, but the entrepreneurial model of the Indian economy explains that one need not choose between geopolitical security or economic self-sufficiency and progress. Moreover, in the world of AI and technology driven industrial transformations, Pakistan’s ailing economy is too dependent on low-cost agricultural exports, and the country’s investments in diversification are next to nothing. Pakistan’s tax to GDP ratio is one of the lowest in the world, and many powerful elements and corporations are exempted from any taxation whatsoever. Furthermore, Pakistan’s political economy has seen a model of gift giving or economic vote-buying, where incumbents in local and national elections dole out economic patronage - subsidies in the case of PTI or ‘laptops’ in the case of PML-N to buy electoral support, rather than investing in a solid economic framework that aids growth and diversification.
This is not just an economic crisis; international discourse shows that it is a crisis that will question the very foundations of Pakistan’s existence.
If significant remedial steps are not taken, our political elite will do their best to put Mohammad Ali Jinnah’s rather passionate statement, ‘there is no power on earth that can undo Pakistan’ to an empirical test. Right now, it seems that Pakistan’s elites themselves seem to be determined to steer the country towards economic disaster. Economic analysts corroborate that the problem is not that the country is heading to economic catastrophe; it is that no one has a long-term cogent reform plan to pull the country back from the brink. While Mr. Khan reckons a new set of elections will miraculously solve Pakistan’s economic woes, the ruling coalition thinks that it will get Pakistan’s friendly allies – UAE, China, Qatar and Saudi Arabia - and the West to throw enough dollars to stop the economic conflagration from engulfing the country.
What the Pakistani economy needs are structural reforms and those can only be put in place once all the players on the table move away from playing politics over the current crisis and join hands to save Pakistan.