The current state of the economy leaves no room for doubt that the next elected government would have to go on an International Monetary Fund (IMF) programme even if one takes the heavily doctored data into consideration: debt of 72 percent of Gross Domestic Product (GDP), a widening trade deficit of 37.7 billion dollars with imports reaching a historical high of 60 billion dollars in spite of over 15 percent depreciation of the rupee during the past six months as well as export promotion fiscal measures, foreign exchange reserves plummeted to 9.78 billion dollars as on 29 June 2018, less than two months of imports, which is fuelling currency flight from the country through smuggling.
The PML-N administration consistently downplayed the rise in debt-to-GDP ratio by citing Greece and some other Southern European countries with a debt-to-GDP ratio much higher than Pakistan's. What they failed to point out is that had these countries not been part of the single currency Euro they would almost certainly have not received massive bailout packages (as loans) from the European banks. Besides, these loans were not without extremely harsh conditions. Pakistan's inflow of concessional funding all but dried up once the three-year Extended Fund Facility (EFF) by the IMF ended on September 2016. The reason: with the completion of the Fund programme, its rigid quarterly monitoring ended which had ensured that Pakistan stayed on the narrow but politically challenging road to reforms. This in turn led other multilaterals and bilaterals to all but withdraw their support at concessional rates though project financing did continue.
In 2016-17, Pakistan received 112 billion rupees under programme loans, while last year the total was 48 billion rupees. The budget for next fiscal year envisages doubling of programme loans to 87.89 billion rupees though one would not be remiss in assuming this would be from non-concessional sources like borrowing from the external commercial banking sector. The IMF report dated March this year, the first post-programme monitoring report, noted: "the authorities' success with contracting external borrowing (over $10 billion in FY2016/17 and more than $6 billion so far in FY2017/18) has been instrumental in softening the impact of the rising external imbalances on foreign exchange reserves. While the level of external debt (27.4 percent of GDP in FY2016/17) has remained moderate, continued mobilization of external financing at favourable rates could become more challenging in the period ahead, against the background of rising international interest rates and increasing financing needs."
The desired sources of foreign exchange earnings, notably exports and remittances, have lagged behind Pakistan's imports and repayment of foreign debt - interest payments as well as the principal as and when due. The rising current account deficit has reached an historical high which is extremely disturbing with little likelihood of a rise in our foreign exchange reserves without incurring loans to shore them up.
In this economic scenario, with elections scheduled in less than two weeks, it is baffling as to why none of the major national political parties has focused on how to resolve this crisis; or more pertinently if there is any other option but to go on another IMF programme. The PML-N is insisting that the economy is vibrant, citing a heavily manipulated growth rate as proof while the PPP's focus is on providing jobs and ending hunger. The Pakistan Tehreek-e-Insaf has focused on building houses as a pro-growth policy, and promoting tourism as a means to increase government revenue.
We are of the firm belief that there is no option but to go on another IMF programme and therefore it is critical for all the three major political parties to acknowledge the state of the economy and present a realistic picture not focused on projecting their wish list (inclusive of expenditure and revenue priorities) but on what conditions to negotiate with the IMF and also request the caretaker government to lay the groundwork for negotiating the requisite programme with the IMF. It is not a certainty as to which political party or group of parties will form the next government after the elections but surely whoever it is, will have to hit the ground running to manage the economy and deal with the balance of payments crisis.