As the noise and fury builds up in the run-up to the election, it is important to draw attention towards issues that have not yet been addressed.
Whoever forms the next government will be faced with a plethora of economic challenges. Pakistan’s fragile economy has not just impacted the common people in the country but has also made the state dependent on other countries — at times in terms of aid and at times in terms of other things.
The prevalent state of economy is deplorable in many ways. Firstly, the external sector of the economy has fallen significantly.According to the latest report from the State Bank of Pakistan, the foreign reserves of the country, being held by the central bank, were recorded at $9,479.5 million compared to the all-time high 24025.8 million forex reserves in October 2016.
Increasing foreign debt is a significant contributing factor to this situation. The SBP is on record that this situation is a result of external debt and official payments.
According to the latest reports, external debt increased to $91,761 million in the first quarter of 2018. It is worth mentioning here that due to the China-Pakistan Economic Corridor (CPEC) agreement, the country’s foreign reserves increased in 2016. This decrease is possibly due to the repayment of loans incurred from different private sectors in China.
When the country’s debt increases, the foreign reserves fall causing the rupee to devalue, which in turn leads to price hikes for commodities such as petrol and other imported goods.
Secondly, it has been a decade since the distribution of resources was materialised. The NFC award is not only necessary for the equal and justified distribution of the national exchequer but can also strengthen national unity.
The previous government failed to constitute an NFC award, which may turn into a problem for the next government. It is true that the government had more balance demands for development resources and security priorities during last five years, when both expenditure heads have increased while the rigid revenue system has failed to keep pace. However, there is a bigger failure that lies behind this: the failure to reform the revenue and tax collection system and broaden the taxation base. Instead, there has been an attempt to pass a bill to the provincial governments, causing the NFC process to stall.
When the country’s debt increases, the foreign reserves fall causing the rupee to devalue, which in turn leads to price hikes for commodities such as petrol and other imported goods
The energy crisis is also contributing to instability. This deficit has badly affected the country’s industrial sector. It is estimated that 40 percent of the Independent Power Producers (IPPs) are non-operational due to circular debt, which has exceeded Rs 500 billion and is likely to further rise due to low recovery and higher incidence of power theft and line loses across the country. Similarly, the water crisis is another challenge for the next government.
In addition, withered democracy with weak institutions is achallenge that need to be addressed by whosoever forms the next government.
While there are challenges aplenty, many are not impossible to achieve. What is needed most is the will of the next government and sincere leadership.
Economic stability can be achieved by enhancing the export sector. Pakistan is an agriculture economy. Agriculture should become a priority for the next government. This can help in reducing our $91 billion external debt.
The next government must avoid borrowing at any and all costs. While loans help stimulate short-term growth, they are always a big problem in the long run.
Pakistan should look towards Indonesia for inspiration. Indonesia has risen from its 1997-1998 economic crises to playing an international role as a main actor creating and maintaining both regional and global prosperity. It achieved this status due to better governance and visionary leadership.
The writer is member of staff at the Daily Times
Published in Daily Times, July 24th 2018.