Sort of a necessary evil
With elections less than a month away, the wheels of economy in Pakistan are coming to a grinding halt. Pakistan’s foreign exchange reserves have fallen below US$12 billion mark, and fresh inflows coming from the US in the form of Coalition Support Fund (CSF) shall no longer be coming. While the lack of a finance minister is not helping the matters at all, that is not the only thing missing in action. A consistent lack of attention towards our own economic and financial woes by the political class has put the country at the mercy of a stagnant economy, higher budget deficit and import/export imbalance. However, a six-member delegation from Pakistan will visit the US and meet key officials of the US treasury department for reconciliation of CSF accounts for fresh inflows and will enter into technical talks with the International Monetary Fund (IMF) for a $5-7.5 billion bailout package.
Our present forex reserve would not last beyond this June. Matters become much more complicated when viewed in the context of overall impact of dwindling foreign exchange reserves. For example, country’s standing as a viable economic entity becomes questionable as well as its standing as a financial market for ratings agencies. But more than anything else, it is the import/export that bears the brunt the most. The balance of payment would become impossible to maintain and the country, considering it follows the same trajectory, would empty up its coffers by the end of the year 2013, and there would not be anything left to pay our international lenders.
The short-term solution, like always, seems going to the IMF for another bailout package, but the Fund would not be any wiser if it agreed to another loan package without assigning its responsibility to one of the political parties, most likely the winner of elections 2013. As a caretaker government is not mandated for these tasks, it won’t be able to give any guarantee to the Fund but not doing so might create difficulties. That is where the political leadership of the country has to step up. While Islamabad needs a package, this should not come at a price too steep to pay up later, as has become a trend with the IMF, along with the dismal performance of country’s premier revenue collection institute, FBR, and a complete disregard of the tax reforms by the body politic in toto. What we should do is to continue to engage with the Fund as well as undertake a serious analysis of the risks and the politically marketable limitations of measures to address our problems.
Political parties in the country, on their part, should keep in mind that popular politics can work only so long. They will have to face the issue sooner rather than later; it would be better if they are already prepared for it. The critics may even question the timing, ownership and the nature of the crisis that this loan package will be attempting to avert. Elections provide an easy subject to pin all allegations on. However, these are the questions that a specifically designated minister could have answered better. After all, a politician is supposed to know policymaking better than anyone else.
