There is an overwhelming consensus among independent economists within and outside the country that Pakistan's economy has never been in such a bad shape as it is in now. Five years of economic mis-governance including corrupting key economic statistics and damaging key economic institutions have brought the country's economy to its present bad shape.
When viewed against the backdrop of the extraordinary opportunities showered by the Almighty God on the previous regime to help improve the living conditions of their people by strengthening the economy, the current state of the economy simply portrays the dismal performance of the economic team. Shamelessly, some key members of the economic team of the previous regime still defend the indefensible through their writings.
No government in the past has received such bonanza in such a short period of time and yet it squandered all the opportunities because of its sheer incompetence. The bonanza included, i) Zarb-e-Azb and Raddul Fasad, aimed at improving security environment in the country, ii) Rangers' Operation in Karachi significantly improving the law and order situation there and restoring the confidence of the industrialists, businesses, traders and most importantly, the people of Karachi; iii) the China-Pakistan Economic Corridor (CPEC) changing the perception of Pakistan at the global level; iv) unprecedentedly benign IMF simply doled out billions in three years; v) the docile parliament never gave tough time to the government; and most importantly, vi) the collapse of international price of oil was the greatest godsend for the previous regime and also the subject matter of this article.
The purpose of this paper is to educate the people of Pakistan about how the previous regime not only squandered the greatest blessing but drowned the country into debt. As will be seen momentarily, the collapse of the international price of oil helped the previous regime in completing their tenure in a relatively stable environment. If oil prices had remained at the 2013-14 level, this government would have come under severe economic pressures by the fiscal year 2016-17.
The findings of this paper would be disliked by those who still believe that the IMF Program restored macroeconomic stability in Pakistan. IMF would certainly be unhappy and anyone who continues to defend the indefensible would equally be disappointed. Let me state at the outset that it is not the IMF Program but the sharp and unprecedented decline in international price of oil which kept the current account deficit below 2 percent of GDP until 2015-16. The IMF Program neither reduced budget nor current account deficits. Both remained significantly higher than what were presented to us by the Pakistani and the IMF authorities. The readers should concentrate on the tables below.
The value and the import prices of crude oil and petroleum products for the period 2013-14 to 2017-18 (5 years) are documented in Table 1. The average price of crude oil import in 2013-14 was $110.6 per barrel while it was $754.2 per metric ton for the petroleum products. With sharp decline in oil prices beginning mid-June 2014 led to the sharp decline in our overall import bills of POL products from $14.86 billion in 2013-14 to $5.1 billion by 2016-17(see last column). With average price started increasing since last year, the overall POL product import bill jumped to $8.46 billion by 2017-18.
If the international price of oil and petroleum products had remained at the 2013-14 level what would have been the import value of POL products during the same period? This fact is well - documented in Table 2. A cursory look at this table is sufficient to see the damaging trend. Total oil bills alone would have surged to $20 billion by 2017-18 as opposed to $8.46 billion when measured at current market price (Table 1).
Table 3 reports the windfalls gains that accrued to Pakistan during the last four years (2014/15 to 2017/18). As can be seen from Table 3, the windfall gain reached the maximum of $14 billion in 2016-17. The gains declined to $11.59 billion in 2017-18 because of the rise in international price. What is astonishing is that this fact remained unknown to the people of Pakistan until now. The total windfall gain in the last four years has been calculated at $32.26 billion. This was indeed a gift from God Almighty to the people of Pakistan in general and to the previous regime in particular.
Unfortunately, the previous regime not only squandered the gift amounting over $32 billion from the God Almighty but also added over $35 billion of external debt to this poor nation. Where has $67 billion gone? The previous regime, its finance minister, and the Principal Accounting Officer of the Ministry of Finance should be asked to explain as to what has happened to this $67 billion of this poor nation. It is simply unthinkable for any sensible person with economics knowledge to defend the performance of the previous regime.
Let me turn towards the IMF. Has the IMF Program successfully restored macroeconomic stability in Pakistan? Table 4 answers this question. The current account deficit at current market price of oil remained below 2 percent of GDP until 2015-16 but started deteriorating thereafter, reaching as high as 5.7 percent of GDP ($18 billion) by 2017-18.
Had the international price of oil remained at 2013-14 (the first year of the IMF Program), the current account deficit would have reached to 3.5 percent of GDP ($9.75 billion) in 2015-16 and would have surged to $26.45 billion or 8.7 percent of GDP by 2016-17 and finally to 5.7 percent of GDP or $30 billion by 2017-18. Could the previous regime survived with such a large deficit? Was the IMF Program responsible for keeping current account deficit of GDP at 2 percent until 2015-16 or was it something else that kept the deficit low and allowed the previous regime to complete the tenure in a relatively stable environment? IMF Program neither reduced budget nor current account deficits. In a companion paper I will prove this fact as well. I hope the IMF management will take note of this fact.
What would have been the external debt situation had the oil price remained at 2013-14 level? This fact is reported in Table 5. The external Debt and Liabilities would have continued to rise reaching $106 billion by 2017-18.
The unprecedented decline in international price of oil has been the greatest bonanza for Pakistan. It helped in keeping inflation and interest rate at historically low levels thereby keeping the cost of borrowing low, helped government to finance its budget deficit at low cost; it prevented interest payment to rise accordingly, helped revenue authority (FBR) to mobilize substantial additional revenue, it helped in keeping current account deficit low and accordingly prevented more accumulation of both public and external debt. Most importantly, it helped the previous regime complete its tenure in a relatively smooth manner. Long live bonanza and pity for the outgoing regime for squandering that bonanza.
(The writer is Principal and Dean at NUST School of Social Sciences and Humanities, Islamabad. Email: [email protected])
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Table 1: Trends in Crude and Petroleum Products Import
At Current Price of Each Year
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Crude Oil Imports Petroleum Total POL Product
Products Import (Billion $)
Year Value (Billion $) Price/
bbl ($) Value (Billion $) Price/MT ($)
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2013-14 5.78 110.60 9.08 754.2 14.86
2014-15 4.20 98.88 7.60 647.5 11.80
2015-16 2.30 51.98 5.34 526.9 7.64
2016-17 2.55 42.46 2.55 153.4 5.10
2017-18 4.23 54.56 4.23 277.7 8.46
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Table 2: Trends in Crude and Petroleum Products Imports
At 2013-14 Prices of POL Products
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Year Crude Oil Petroleum Product Total POL
Import (Billion $) Import (Billion $) Product
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2013-14 5.76 9.08 14.86
2014-15 4.69 8.85 13.54
2015-16 4.88 7.64 12.52
2016-17 6.63 12.52 19.15
2017-18 8.57 11.48 20.05
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Table 3: Windfall Gains (Billion $)
Year at Current at 2013-14 Gains
Price Price
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2013-14 14.86 14.86 -
2014-15 11.80 13.54 1.74
2015-16 7.64 12.52 4.88
2016-17 5.10 19.15 14.05
2017-18 8.46 20.05 11.59
Total Gains 32.26
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Table 4: Current Account Deficit (Billion $)
Year at 2013-14 Price At current Price
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2013-14 3.13 (1.3% of GDP) 3.13 (1.3% of GDP)
2014-15 4.45 (1.6%) 2.71 (1.0% " ")
2015-16 9.75 (3.5%) 4.87 (1.7% " ")
2016-17 26.45 (8.7%) 12.43 (4.1% " ")
2017-18 29.59 (9.5%) 18.00 (5.7% " ")
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Table 5: External Debt & Liabilities (Billion $)
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Year At Current At 2013-14
Prices Prices
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2013-14 65.4 65.4
2014-15 65.1 66.8
2015-16 73.1 78.0
2016-17 83.0 97.0
2017-18 95.0 106.0
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