The visit of Pakistan’s Prime Minister to China has unprecedently brought banquet of good news for our nation, especially mutual agreements signed including those on improvising infrastructure, education, and agriculture so forth for Pakistan economy on advanced contemporary innovative pattern of the world. Financial support from China and Saudi Arabia in form of loan and time-bounds assistance for reserves had caused Pak-rupee temporal valuation in the start of previous month in terms of dollar exchange, but sudden overnight historic devaluation of currency up to Rs 139/$ has corroborated the anticipations that clouds of probable economic crisis are still hovering around the economy.
Currency ratio has been observed dramatically outnumbered in comparison to deposit ratio since last 6 months viewing from banking perspective, almost thousand billions of Pak-rupee seems to have run out as leakage from circulation of money flow and might have dumped in somewhere else instead domestic financial markets & institutions causing recent financial panic which might further put domestic banks prone to fall in liquidity trap.As well as crash in domestic financial markets resulted from unprecedented dropping down the velocity of money in domestic economy which adversely affect investment and growth in the light of very tenets of quantity theory of money.
The major reason of such scenario is too much curiosity to wipe out the corruption at zero level which is ideal norm, because gini- coefficient is very high and almost 90% of wealth is concentrated in few hands of elite Pakistanis comprising almost 10 – 15% of the population, who are often dubbed as corrupt ones but virtually huge chunk of deposition and investment stocks&flows in economy is directly or indirectly dependent on such class, as an irony.
Current reserves are not sufficient enough to maintain domestic financial markets as well domestic banks funds provision requirements, so approaching IMF at this critical juncture is necessary
CPEC was earlier compromised on sub rated price of only 7% of toll tax which could have been realized up to 50% as engagement terms and conditions with China, if Pakistan would have undertaken herself the task of completion of the route from Gwadar to Kashgar for fully reaping the fruit of such mega project of immense economic importance in the region and beyond, instead, if OPEC countries were to collaborate for financing the route via issuance of shares to finance providers as well, domestic financing could have been on the same pattern with a bright lucrative prospectus. Imran Khan’s successful engagements with China is the feather in his cap to expand the scope for strengthening the economy.
Reluctance to approach IMF for financial assistance certainly would aggravate the financial panic in the economy. Current reserves are not sufficient enough to maintain domestic financial markets as well domestic banks funds provision requirements, so approaching IMF at this critical juncture is necessary.
However,the incumbent government should further revisit the terms & conditions on CPEC engagement and take bold stance. Hasty anti- corruption campaign will not bring forth fruitful repercussion for the national economy, though the menace may be minimised gradually rather than overnight because “Rome was not built in a day”. The corrupt may be approached to return illegal money through instalments with rebates and amnesty. Case studies of Indian and Zimbabwean economies are exemplary in the context.
Recently, rapid high inflationary spell has caused the lives of grass root level of people this country very miserable, evoked anti- sentiments against incumbent government who before elections promised to promote prosperity and development. Goods and services of necessities must be exempted from tax to relieve the heavy financial burden, suffering there from.
However, incumbent government should focus on fostering productivity in the economy by following the pattern of China, Malaysia and Singapore who had attained sustainable economic growth by getting rid of vicious cycle of poverty towards today s virtuous cycle of prosperity.
The writer is a PhD scholar in economics
Published in Daily Times, March 20th 2019.