In any other economy, the finance minister would have lost his job. Even the government would have gone. But, Pakistan being Pakistan, it is content with showing the door to the head of State Bank of Pakistan for speaking the home truths. Three noted economists walked through the revolving door since Jan 2009 with tenures that lasted from five to nine months. The present incumbent, Yasin Anwar who took over the reins last October is the 17th governor of the bank since its inception in 1948. The short point is there is no problem with the doctor and his prescription. Problem is with the patient who thinks the twinkling stars in the sky and the GHQ will do the wonders.
If Pakistan wants to avoid a social upheaval, which will be unavoidable at the present rate of unemployment, and shortage syndromes, it must do something pretty fast since the world itself is passing through a challenging economic environment. The IMF wants the Pakistan economy to achieve a 3.4 per cent growth pace in fiscal 2011-2012, which runs to June 30, compared to 2.4 per cent last year.
But that is less than half the pace needed to absorb two million new workers in the market every year, as the IMF points out. Already unemployment and underemployment are higher than the official 6.6 per cent rate. With loose money policies adopted by the State Bank of Pakistan under government pressure to help the economy grow are pushing inflation towards 12 per cent mark Pakistan economy has few buffers left to absorb shocks. At the end of November 2011, every Pakistani was burdened with government debt of Rs.65, 700. About 42 % of this debt is in foreign exchange. Debt serviceability is at a premium because Pakistan’s forex reserves at the end of the first week of February 2012 were no more than $17 billion.
IMF assessment is that without correctives in place, budget deficit could balloon to 7 percent of GDP (Pakistani Rupees 1, 470 billion), steep depletion of forex reserves, and heaving market borrowings. The result is the loss of investor confidence with even China doing a re-think on investing in Pakistan. If the leadership of the land of pure wants to avert a possible collapse of the economy, it must heed the advice from the high priest of global soft lending.
And the advice is a call for a reorientation of macroeconomic and structural policies to stem near-term risks to macroeconomic stability, and to lay the foundation for durable and inclusive growth over the medium term. Addressing long-standing deficiencies in the regulatory regimes against money laundering and terrorism financing, and strengthening the framework for fiscal devolution and the incentives for provincial governments to raise revenue are a key part of the prescription to turn around the Pakistani scrip.
In the past, the IMF gave Pakistan billions of dollars in return for its pledge to introduce the much needed fiscal and tax reforms, restructure its power sector, and cut food and energy subsidies. The government attempted to introduce some of the reforms, but soon backed off in the face of public opposition. By 2010, the IMF was forced to suspend the release of its last two installments of $11.3 billion loan sanctioned in 2008 after Pakistan’s foreign exchange reserves tanked. But the decision failed to stir Pakistan into action.
The U.S., the country’s largest export market and aid provider, held back $800 million in military assistance in July out of $2 billion pledged for this fiscal year because of disputes over how to combat terrorism. Now again, Islamabad will have to knock at the IMF door for a survival kit. Its availability depends very much on the mood in Capitol Hill and the White House.
