Political confrontations led to external accounts imbalance
Renowned economist Dr. Shahid Hasan Siddiqui said Pakistan’s real GDP growth rate with some price stability in 2017 is highest during last 10 years while Foreign Direct Investment (FDI) reached a nine year high level during Jul-Nov 2017. The improvement in economy without required structural reforms has, however, been at high cost not capable of absorbing any major domestic or external shocks. In an interview with The Nation, Dr. Hasan, who is Chairman of Research Institute of Islami Banking and Finance, said during last 53 months of the tenure of present government, trade deficit was US$ 122 billion and current account deficit US$27.50 billion while remittances were US$ 82 billion – all the three are highest in the history of Pakistan in the corresponding period.
Due to political confrontation mainly for political objectives, protest culture and extensive publicity and talk shows in electronic media irrespective of Panama Leaks Case and surpassing of their respective jurisdictions by the State Institutions created an environment of uncertainty and apprehensions triggering flight of capital and dollarization of economy. The SBP Foreign Exchange Reserves fell from US$18.9billion in Oct 2016 to US$12.7 billion in Nov 2017, he said, adding that the foreign currency deposits with commercial banks surprisingly rose by US$ One billion during the same period reflecting dollarization of economy.
Due to imprudent economic policies of federal and provincial governments and tough IMF conditional ties, it is now obvious that Pakistan’s exports only in the current FY with be short of target by at least US$ 11 billion, he argued.
Dr. Hasan said the targets of tax-revenue and GDP growth rate will not be achieved in the current FY while budget deficit will be much higher than the target.
“The responsibility of this poor performance also lies squarely with the provinces as they also miserably failed to fulfil the commitment of their 2013 election manifestos. “Pakistan’s Exports in FY18 will be less than the Exports of Pakistan even in FY 2011, while the imports will continue to rise,” Dr Hasan said.
When asked for his comment on predictions by some economists that Pakistan will have to face tough situation in next year as the country will have to re-pay external debt and liabilities, Dr. Shahid said, Pakistan is likely to face a shortfall of about US$12billion or so in the current Fiscal Year which can be met by increase in export, reduction in imports and sale of International Bonds, commercial loans from foreign banks and drawdown of foreign exchange reserves.
“There will therefore be no need to approach IMF during the tenure of incumbent government. It is however obvious that the top priority of the next elected government will be to obtain a bailout package from IMF with recommendation of USA possibly in Aug and Sept 2018.
“This will be a continuation of the deal concluded in 2008 with Friend of Democratic Pakistan (FoDP),” he maintained.
Dr. Hasan recalled that the meeting of Friends of Pakistan (FoDP) members countries in USA jointly chaired by the then President Asif Ali Zardari and the then US Foreign Secretary Hillary Clinton was held on Sept 26, 2008. The decisions of the meeting were termed a deal by British Foreign Minister as it was decided that in consideration of Pakistan’s agreeing to fight War on Terror in Pakistan with collaboration mainly of USA, IMF will be asked to sanction a loan to Pakistan.
The then government including the advisor on Finance Shaukat Tareen and Foreign Minister Shah Mehmood Qureshi repeatedly declared that the cash grant will be made available to Pakistan by the Friends of Pakistan Group’s countries whereas the decision was that a loan from IMF will be made available to Pakistan.
“A loan for a three years term was accordingly approved by IMF in November 2008.
“This was greatest deceit in the history of Pakistan. The negative consequences of which are still being faced by Pakistan,” he deplored.
“The present government obtained a loan from IMF with the recommendations of USA on 19th August 2013 for a three year term on the pretext of payment of IMF loan obtained in 2008. This IMF programme was also a failure,” Dr Hasan was of the view.
He observed that the present external sector crisis was mainly due to huge Current Account Deficit and fall in foreign exchange reserves. “It is also due to imprudent IMF conditions and the manner in which these conditions were met by the federal government and all the four provinces.
“In the beginning of 2017, it was more than obvious that Pakistan would not require a loan from IMF by at least 2020 and if Pakistan introduces structural reforms we could well say good-by to IMF,” he observed.
“It is unfortunate that due to disturbed conditions created in Pakistan consciously or unconsciously, we have reached the situation where the new elected government will have no alternative but to seek a bailout package from IMF immediately on resuming power.
“The discussions regarding conditions are, however, likely to be initiated by the caretaker government before elections.
“It will be national tragedy if Pakistan obtains a new IMF loan which will be on very tough economic conditions and USA would insist on “Do more” in the War on Terror.
“To safeguard national interests it is important that the present government must formulate a policy due to which we could avoid going to IMF for a new loan package,” he concluded.