On December 16, 2021 at a seminar at Hamdard University where Dr Miftah Ismail, who later became country’s finance minister, was the co-speaker the writer, being purely an accountant, observed that the country’s books of fiscal account, foreign currency account and energy account do not balance. There have to be some extraordinary actions before matters get out of control.
This assertion, which was made in good faith as a caution, was picked up by the opposition media and they publicized it as an admission of failure by a person who was once on a very responsible position in the Pakistan Tehreek-e-Insaf (PTI) government.
This assertion was totally unjustified. In the whole presentation it was clearly demonstrated that this precarious position is not the result of good or bad performance of a government that came to power in the latter half of 2018. In fact, these accounts were never balanced in the past and the worst year was 2018.
Now in December 2022 the parties comprising Pakistan Democratic Movement (PDM) coalition government and PTI alike are claiming that the country is on the verge of a sovereign default or financial collapse.
The PDM government is claiming that it has successfully helped the country avert the sovereign default, holding PTI responsible for the economic slide. On the other hand, however, PTI is of the view that the incumbent government has destroyed economic consolidation that its government had achieved between 2018 and 2022.
If the statements of political parties are held to be gospel truth it means that neither party had the sense of the country’s fast emerging economic situation or both of them were not sharing the correct picture of the economy with people.
In this regard, the bigger responsibility lies with the country’s independent economists who have been maintaining meaningful silence for whatever reasons.
In this and the following articles on this subject the writer will try to demonstrate that Pakistan as a state and its people as citizens live in a state of denial. In the earlier years of 1947 and 1948 (before the Quaid’s death) there was some sense of real situation, a situation strongly characterised by, among others, the shortage of foreign exchange.
However, after the Korean War in the 1950s, the only year when Pakistan had a positive current account, the country has been continuously living in a state of denial.
Various kinds of bailouts that the country received by compromising its sovereignty and impartiality in foreign affairs further spoiled the habits of an already spoiled people. This position further worsened when foreign exchange remittances started arriving from the Pakistanis working in the Middle East and elsewhere.
Almost all of such remittances were consumed in an imprudent manner; these were never saved in an economic sense.
As a result of which, the state and the people at large became unconcerned about a perennial shortfall in the current account. A comparison with India may be employed for a deeper analysis.
The following information is contained in CIEC Data-base:
India
“India Current Account Balance: USD million data is updated quarterly, available from Jun 1949 to Jun 2022, with an averaged value of -344.2 USD million”.
Pakistan
“Pakistan Current Account Balance: USD million data is updated quarterly, available from Mar 1976 to Sep 2022, with an averaged value of -424.3 USD million”.
The aforesaid figures may not be exactly comparative as the time span is different; however, they reflect a discernable trend.
India’s economy is almost seven times bigger than Pakistan’s. However, its current account deficit, on average, is less bigger than Pakistan’s. This is enough to prove that we have spending out of other people’s grants or loans and the state and the people at large are complacent on that count.
In this respect it is also to be noted that even during the times when Pakistan had been maintaining a growth rate which was higher than India’s for the first 50 years of existence, the engine of growth was borrowed or gifted money. In short, Pakistan’s position with respect to foreign currency accounts was never comfortable.
It was the responsibility of independent economists to spell out the truth that a constant shortfall in the current account can compromise country’s economic and political sovereignty. As the President of South Asian Federation of Accountants, this writer visited Dhaka in 2008.
The Bangladeshi friends’ primary complaint in relation to economic policies prior to 1971 was borrowing in foreign currency and its utilisation in the then western part of the country.
We all forget that our capital city, Islamabad, was created by a poor country as if we making creating another Washington. But that is history. The question is whether we have learned anything from history. Unfortunately, however, the answer is in the negative.
At present, Pakistan’s foreign currency loans are over 125 billion dollars. The country’s foreign exchange reserves, including the private reserves, are around 11 billion dollars. Indian reserves are around 590 billion dollars whereas their total external debt is of 600 billion dollars.
However, it is interesting to note that the composition of foreign currency loans of India. Of the 600 billion dollar foreign debt, only 130 billion is sovereign debt, the remaining is private debt borrowed by non-government enterprises.
Firstly, it means that those loans have been used for capital purposes as both in India and Pakistan, foreign currency loans for the private sector are only allowed for capital purposes. In Pakistan, a major portion of foreign debt is sovereign debt and almost all of it was used to finance fiscal deficit.
In Pakistan, even the portfolio investments are made for that purpose. This comparison reflects the sense of denial with respect to our sustainability in relation to foreign debts. The worst part of our governance is lack of information about our foreign debt.
In India, however, a document is attached in every Budget Speech and made available publicly. Issued by the Finance Minister, it contains almost a research paper about external debt of India. In Pakistan even the total amount of liability and its repayment schedule lie somewhere in the drawer of a ‘Babu’s’ desk in the Ministry of Finance.
The primary question that arises in this situation is whether or not this issue is related to the genesis of the manner in which this state was created and run since 1947.
In an earlier article in this newspaper, the writer had stated that All India Muslim League, the party that created Pakistan, never had any dedicated session aimed at reaching an economic outlook for the country after the exit of the British colonial masters.
One day we woke up and came to know that we have a country to run without sufficient resources, experience and knowledge. The Indian National Congress, way back in the 1940s, had successfully delineated the ‘Karachi Plan’ that laid down the primary economic plan for the post-1947 period.
(To be continued tomorrow)
Copyright Business Recorder, 2023
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