EDITORIAL: Economic infirmity, defined as a country’s under stress macroeconomic indicators particularly its current account deficit and reliance on loans, has emerged as a major determinant of the lack of influence a country has in the comity of nations.
While in several countries, military strength is a corollary of economic strength as it enables higher military spending, yet economic sanctions and not military engagements appear to have become the preferred action against what is perceived as a recalcitrant country (examples being Iran, Cuba and North Korea).
The days of swift military retribution in the aftermath of serious human rights abuses or direct attack on another country by non-state actors as in the case of 9/11 appear to be over after the massive negative economic fallout for those who intervened in terms of costs incurred (estimated 2.3 trillion dollar cost of the Afghan war) and a huge increase in the number of refugees in Europe today (from Libya, Syria, Iraq and Afghanistan).
Pakistan, as a case in point, has relied mainly on geopolitical considerations to get some leverage that administration after administration has used to acquire concessional loans from multilaterals/bilaterals. Additionally, during the past decade Pakistani administrations have incurred expensive non-concessional loans from the commercial banking sector abroad as well as from debt equity (at rates well above the market rates).
True that 95 billion dollars of the 126 billion dollar external loans today was acquired by previous administrations, however, the incumbent government is responsible for adding on 31 billion dollars to foreign debt that belies its claim that it is only borrowing to pay off past loans. And while the bulk of this additional borrowing is to pay the interest on past loans, yet more than 5 billion dollars, as per the government’s acknowledgement in the relevant standing committee of the parliament earlier this year, was procured to finance government’s current expenditure.
Prime Minister Imran Khan’s recent statement that there is not enough money to run the government is finding traction in the foreign media, particularly India, and one would hope that he realises that part of the responsibility lies with his administration for not focusing on reducing current expenditure that was raised from 4.298 trillion rupees in 2017-18 to 7.523 trillion rupees in the current year - in 2017-18 the G-7 Covid-19-related debt relief initiative was not applicable though 113 billion rupees allocated to the Benazir Income Support Programme was not part of current expenditure, a relief that has been availed by Pakistan since 2020-21 with 246 billion rupees earmarked for Ehsaas programme as a current expenditure item.
The Prime Minister’s focus on current account deficit is laudatory, however, limiting this focus on the trade deficit may be ill-advised given that like previous administrations, the emphasis on monetary and fiscal incentives to promote exports has not led to a significant rise in exports while imports are rising at a much faster pace which has raised the spectre of a current account in stress today. Ignored is the borrowing component of the current account, which can be controlled by the government, especially at this time when remittances have peaked due to multiple external and internal factors.
Thus borrowing continues unabated and while the Prime Minister is on record as stating how bad he feels when he asks some foreign countries (‘friends’ of Pakistan) earnestly and humbly for money, yet there appears to be no policy to end this reliance through government policies, including a massive cut in current expenditure, a curtailment in reliance on external borrowing through planning a strategy on the same pattern as followed by India in the past whereby only imports of what was regarded as essentials were allowed (measures that included non-tariff barriers), and foreign borrowing was used entirely for infrastructure development (physical and social and not for funding current expenditure). It is important to note that when the country became self-sufficient were market reforms implemented that opened the Indian economy to the rest of the world.
Today non-resident Indians (NRIs) invest in their country’s debt paper and do not have to be lured by rates substantially higher than available in the rest of the world. In addition, India has over 640 billion dollars in reserves - unlike Pakistan’s little over 16 billion dollars half of which are debt-based - and it uses these reserves as leverage, including getting foreign capitals to remain ominously silent on its human rights violations in Indian Illegally Occupied Jammu and Kashmir (IIJOK).
It is about time the government realised that the hour of reckoning is fast approaching, if not upon us already. The tendency to put off the necessary ‘surgical procedure’ that our economy direly needs has to be curbed as the portents of postponing it are too grim to be speculated.
This ‘surgery’ has to be an indigenous procedure with its pain shared by all classes and economic players equitably and there shall be no holy cows as we may even have to review our national security strategies. Let’s face it. We must be realistic about an unwelcome economic situation.
The government is therefore required to balance its books and while it is focused on raising revenue it should also drastically reduce and rationalize expenditures for only then would such balancing of books be possible and we as a people be able to hold our heads high amongst the comity of nations. Last but not least, it is a fact that Pakistan happens to be the only nuclear power country in an IMF programme at present. It is also a fact that the country has approached the ‘international lender of last resort’ as many as 22 times in its history.
Copyright Business Recorder, 2021
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