Finally, Pakistan has got a $6 Billion bailout package from International Monetary Fund (IMF) to emerge from its macroeconomic crisis. IMF is an International organization which helps in the management of balance of payments difficulties and international financial crises. IMF has already given 21 loans to Pakistan and this will be its 22nd, to help it come out of its ongoing difficulties of dwindling foreign exchange reserves, low exports, high inflation, growing fiscal deficit, and current account deficit.
Prime Minister Imran Khan came to power by promising that his government will never seek loans from any International organization, rather he will ensure tax collection worth over 8000 Billion Pakistani Rupees from within the country. But Imran Khan had to go back on his promise and had to look for a bailout. However, Imran Khan had taken several austerity measures, though some of them attracted a lot of criticism, like his drive for crowd funding a whopping $14 Billion to build dams.
Khan asked his ministers to work fourteen hours per day while he himself will work sixteen hours per day and also on Sundays. He discontinued the overseas medical facilities for ministers funded by government treasury. Khan also announced that unnecessary international tours by government officials including the Prime Minister will be avoided, and he will stay at Envoys’ residences rather than in expensive hotels during his foreign visits, including his forthcoming U.S. visit, to cut costs. He put more than 100 bulletproof luxury vehicles and helicopters on sale and collected $600,000. He also auctioned eight buffaloes kept by former Prime Minister, Nawaz Shariff at Prime Minister’s House. Khan launched an ‘Asset Declaration Scheme’ and appealed to all the citizens to declare their assets by June 30 and turn them into white by paying a 4% tax.
The economic problems in the country have worsened over time. In the Financial Year 2019, the economy is growing at a rate of 3.3% as against the expectations of 6.2% growth rate. As per the Pakistan Economic Survey 2018-19, most of the sectors in the economy have under-performed. Agriculture, which employs over 40% of the population, was targeted to grow at 3.8%, grew only by 0.85%. During FY2019, the provisional growth in industrial sector has been estimated at only 1.40 per cent due to decline in large scale manufacturing, mining and quarrying. Services are estimated to grow 4.71%, compared with a target of 6.5%.
Pakistan for some time now, has been spending over 31 per cent of the government’s expenditure in debt servicing. Country’s expenditure on imports exceeds the export receipts. The current account deficit rose from $2.7 billion in 2015 to $18.2 billion in 2018. The trade deficit expanded further because of the rising imports under China-Pakistan Economic Corridor (CPEC) projects and low exports in general.
Pakistani Rupee has depreciated massively in a span of few months. Being traded at PKR 110 for a USD in March 2018, it has depreciated to PKR 160 for a USD in June, 2019. This has increased the country’s bill on imports, though its sources of revenue have not expanded. Inflation rate in Pakistan reached a high of 9.41 in February 2019 and was at 8.89 in June 2019.
Despite securing loans and aids from friendly countries like a $2 Billion concessionary development loan from UAE and a pledge for investment of up to $21 Billion by Saudi Arabia, the problems of Pakistan are far from over. The bailout from IMF has also come after introduction of austerity measures and painful reforms like slashing government subsidies; ensure increased tax collections, etc.
So, finally, if Pakistan intends to come out of this crisis, then the government must take some worthwhile steps to improve the macroeconomic conditions of the country, and at the same time, it should also modernize its industries to become more competitive in the global market. It must ensure that the products manufactured in the country are of export-quality, to ensure reduction in trade deficit. The government needs to attract more foreign direct investment (FDI), instead of relying so heavily on foreign aid. On this, the country can also take a cue from India, who rose to 77th rank from 100th(in 2018) in ‘Ease of Doing Business’ in Doing Business Report, 2019. Pakistan is currently at 136th rank out of 190 countries. The Pakistani government needs to take some hard steps to bring the country out of the current catastrophe, before it gets too late.
Picture Courtesy – timesofislamabad.com