A mammoth task for the incoming government
Back in 2013 the PPP government got a fair bit of criticism for handing over a complete mess of an economy to the incoming PML-N. Reserves were around $11.5 billion, the current account deficit was $2.5 billion, and the rupee was hovering close to Rs98/USD. In comparison what awaits the incoming government in the coming week is nothing short of a horrific. While the reserves figure is higher at $15.6 billion it realistically does not matter given how the current account deficit is the highest ever at a staggering $18 billion and the rupee – of late left to its own devices – has reached a historic low of Rs128/USD with no indication of stopping at this level. An economic crisis waits whichever party comes to power and from the looks of it the main contenders seem clueless.
Efforts are already being made by the caretaker government to immediately go for an IMF bailout much like in 2013 with the $6 billion EFF (extended fund facility) that the PML-N secured. Only difference is that a similar package will simply not cut the mustard. With external debt at its highest in years at $92 billion compared to $31 billion in 2013 we will require more reserves to finance it as interest payments pile up. Understandably the IMF will ask for its pound of flesh with far reaching austerity, impossible revenue targets and restrictions on public expenditure. There were hopes to bolster foreign exchange reserves with the much touted tax amnesty scheme. While participation was commendable the repatriation of liquid funds was negligible as declarations at 5% tax minus bringing your cash back was the most preferred option – obviously!
An entire decade has been spent by consecutive governments unable to introduce reforms and sound economic policies that can have long term far reaching positive effects. On the revenue side the dependence remains on exports and remittances rather than tax revenue. Expenditure remains unchecked with the government spending huge amounts of borrowed money on infrastructure projects that are not necessary. Is there a competent enough team available with any of the parties contesting elections who can get us out of this mess?
