Ruling out the risk of default

In a meeting convened by the Planning Commission in connection with the preparation of its five-year development plan, some leading lights of the bureaucracy highlighted certain important aspects of the economy.
The Secretary of Economic Affairs Division (EAD), Farrukh Qayyum told the participants that Pakistan was entirely in a comfortable position to meet in time its foreign liabilities, and there was no risk of default at any stage. The country was out of any default risk because reduction in oil prices in the international market and cut in subsidies had provided it ample space to manage its foreign liabilities comfortably.
Finance Secretary Waqar Masood informed the meeting that his ministry was following a multi-pronged strategy to save every possible penny by cutting down non-development expenditures and removing distortions that had pushed the economy into the grey area during the last few years.
The Wapda Chairman briefed the participants about power crisis and revealed that the government was focusing on hydel and coal-based projects to get cheaper electricity for the consumers. State Bank Governor Shamshad Akhtar informed the participants about the monetary policy of the State Bank and again advised the government to minimise borrowings from the SBP and live within its own resources.
From the above statements, it appears that some top functionaries of the government have almost declared victory before fighting the battle of restoring the deteriorating health of the economy. For instance, it is true that the fall in international oil prices and cut in subsidies would reduce the total import bill of the country, but to say that these developments would totally eliminate the risk of default is not true.
One does not have to be an economic expert to conclude that even after accounting for the favourable impact of these developments, the country would still face the ugly prospect of a huge current account deficit due to the widening gap in its trade account, capital flight and certain debt payments.
Authorities of the country have been desperately seeking Saudi Arabian Oil Facility and loans and assistance from international financial institutions (IFIs) to bridge the gap in the external accounts, but these initiatives have not yielded the desired results so far.
There is also no certainty that such efforts will bear fruit at all or in a specified timeframe. Coupled with this is the constant decline in foreign exchange reserves of the country, which is scaring away foreign investors and putting increasing pressure on the rupee. The latest developments on the western borders of the country would further aggravate the economic situation and damage export growth.
The statement by the Wapda Chairman that the government is focusing on hydel and coal-based power projects seems like a wish of an individual oblivious of reality. No worthwhile or practical efforts are in the offing to indicate that Pakistan is going to get a major share of its electricity requirements from these sources in the foreseeable future.
The State Bank governor has been advising the government to reduce its dependence on the banking system for its borrowing requirements to contain price pressures in the economy for a long time but the relevant data during 2007-08 and July-August, 2008 show that her urgings are a kind of cry in the wilderness.
Overall, while evaluating the statements of various top officials of the government, it is hard to escape the conclusion that the country would be served better if only facts are revealed in such meetings without offering pre-judgements and over-optimism is avoided to tackle the issues in a more forthright, realistic manner.