Pakistan’s Economic Predicament


Zafar Aziz Chaudhry

Pakistan’s economic degradation has reached its lowest limits. Due to its highest imports and the rising prices in the international market, it is facing its worst balance of payment crisis. Foreign currency reserves have fallen to as low as $9.8 billion, hardly enough for five weeks of imports. The Pakistani rupee has weakened to its lowest limit against the dollar. According to the World Bank report, “Unless Pakistan cuts its spending of 40% of its revenue on interest payments, there is little hope of its economic survival.” The World Bank also predicts that “Pakistan’s economy is expected to grow by only 2 percent in the current fiscal year ending June 2023.” China needs to control its spending and reduce its imports due to high inflation and slower growth caused by catastrophic flood damage. The World Bank also predicted that Pakistan’s recovery will be gradual, with real GDP growth projected to reach 3.2 percent in the fiscal year 2024. The recent floods have caused a substantial negative impact on Pakistan’s economy and the poor, mostly through the disruption of agricultural production. Thus, the primary concern of Pakistan is to give immediate relief to the poor flood-affected people. Macroeconomic risks also remain high as Pakistan faces challenges associated with a large current account deficit, high public debt, and lower demand from its traditional export markets. In such circumstances, the WB says “priority should be to tame inflation through sound macroeconomic policies. There will be a need to address the distortions that discourage trade and productivity.”
Macroeconomic risks also remain high as Pakistan faces challenges associated with a large current account deficit, high public debt, and lower demand from its traditional export markets. According to an American think tank, “Pakistan is ranked 34th among 39 countries in the Asia-Pacific region, and its overall score is below the regional and world averages. Pakistan’s economic freedom score is 48.8, making its economy the 153rd freest in the 2022 index.”
This is indeed a very dismal picture. In light of the recommendations of the world’s economic experts, stringent economic measures have to be taken by the government in earnest. But besides those measures to be taken by the government in the public sector, several steps should be taken by both the private and public sectors to discard extravagance in expending on frivolous pursuits and live their lives with strict parsimony. In such a background real change would only be possible when there is a change of mindset by our rulers and the elite circles to stick to an austere programme of austerity to cut down the expenditure on their luxuries and useless expenditure which still goes on despite such a critical economy of the country. The past efforts to observe austerity are not enviable and unless a benevolent ruler stringently enforces austerity measures through proper legislation of rules, providing for punishment to the violators, the situation won’t improve. During recent months, our PM has made several trips to various countries to beg aid for relief of Pakistan’s tottering economy, but he has also taken his huge entourage, composed of his family members, friends, and party men, etc. (who had no business to do during the PM’s trip), on these foreign trips. The purpose of the PM’s recent visit to Geneva was to attend a Climate Conference for soliciting funds for the flood-affected people of Pakistan. But the entire entourage was made to stay in the Fairmont Hotel in Switzerland, which is the most expensive hotel chain in Europe, costing around $20,000 a night. The aid of $10 million had barely arrived, and the DW, to keep a check on the fair distribution of these funds, launched a poll in which it asked Pakistanis whether they believe the funds will be used transparently. This is a big question mark for the integrity of our ruling class.
According to the annual index report of an American think-tank, “Pakistan’s economy is below the regional and world averages.” The current government came to power with the slogan “defeating inflation,” but has failed to provide any relief to the common man. Economic progress and political stability are correlated with each other. One main reason for Pakistan’s worsening economy is its political instability. It took nine years to formulate its first constitution in 1956, which, due to internal feuds among the politicians, gave way to military intervention. Later due to two more military interventions and frequent changes of governments, no unified economic policies could be framed, leaving the country politically unstable. This was the primary reason for its economic decay.
Pakistan’s ability to wriggle out of the present economic mess depends on the priority it gives to taming inflation through sound macroeconomic policies. The hard-hit people and regions should be attended to urgently. On an extended social protection programme, other distortions should also be attended to which tends to discourage trade and productivity.
In July 2022, the Federal government notified a policy of austerity, that contained measures like a complete ban on the purchase of vehicles, a ban on treatment abroad at government expense, a ban on the creation of new posts, a ban on an official visit abroad by government functionaries, etc. Such international meetings with foreign representatives can be easily held on zoom or video communication to prevent enormous travel expenses which are a burden on the national exchequer.
It is not known, however, whether the government or any agency has checked the actual implementation of these austerity measures. In the past, such austerity measures failed because of a lack of will on the part of selfish rulers, who sometime later relaxed the policy under their self-created exigencies. The other day the media alleged that the government had imported 138 Mercedes Bens cars of the latest model. If the news is true, then there is no hope for Pakistan’s economic recovery. But if the rulers do not mind carrying a huge entourage on foreign trips at state expense, particularly on visits to beg financial aid for Pakistan’s teetering economy, they, unfortunately, do not paint their country in good light, nor the donors would be too inclined to help us in our hour of distress. Economical revival depends on concrete practical steps undertaken with steel determination, which the present ruling class is neither competent nor willing to take.