Pakistan’s economic future hangs by a thread

  • Not so secure yet, are we?

Saudi Arabia has pledged $6 billion to help Pakistan out of its economic crisis. $3 billion would help Pakistan address its balance-of-payments issues while another pledged $3 billion would allow Pakistan to import oil from the kingdom on deferred payment basis.

During a recent meeting between Prime Minister Imran Khan and Saudi Crown Prince Muhammad bin Salman bin Abdulaziz Al Saud, the de facto ruler of the kingdom, it was agreed that Saudi Arabia would reduce the visa fee for Pakistanis working in the kingdom. However, it is still unclear how much the visa fee would be reduced and, until this is confirmed, we cannot estimate the impact this would have on the remittances coming from Saudi Arabia; considering that $7-8 billion of Pakistan’s total $20 billion remittances come from the kingdom.

Saudi assistance is not enough for Pakistan to get rid of its economic woes. The prime minister has already said that Pakistan would still seek International Monetary Fund’s (IMF) help. If the current government gets the IMF bailout package, it would fail to bring the reforms it had promised before coming to power. Its economic policies would more or less remain the same as those of its predecessors.

This is because once a country takes a loan from the IMF, it is bound to follow the mutually agreed upon conditions. IMF provides loans to a country after examining its economy, including budget deficits, monetary and fiscal politics, inflation. After careful examination, it grants the loan and suggests economic measures. The extension of the loan depends upon the country’s commitment to implementing the economic reforms prescribed the Fund. Although it is true that IMF is used as an instrument by the western powers to pursue their foreign policy goals, the economic measures it suggests are for the betterment of the country itself. Countries often fail to follow those measures because of the hard-hitting impact they have on the common man. IMF usually asks countries to reduce subsidies on public goods and increase tariffs on public utilities (oil and gas) which affect the poor more than any other segment of the society. A decrease in development expenditure prevents the government from going ahead with its welfare reforms agenda. If Pakistan takes the bailout package from IMF, the incumbent government would not be at liberty to create a welfare state which it had promised before coming to power.

Saudi loans too would bind the government from achieving its foreign policy goals. As most of us know, there is no free lunch, therefore, there is an underlying speculation that Saudis are pouring money into Pakistan for their own interests. It is certainly possible that Pakistan would be forced to strain its ties with Iran, which means that a balanced foreign policy is still nowhere near. Despite the fact that Pakistan has stated repeatedly that it would not get involved in another country’s war, Saudi Arabia might push Pakistan into sending its troops to Yemen.

The incumbent government’s flawed approach in curbing money laundering would not be of much help either. The government’s focus is more on recovering money that has been stashed abroad than on preventing money laundering

Considering everything, both IMF and Saudi loans would be quite painful for Pakistan but the country would have to accept them out of economic necessity. Although they would provide a short-term relief to the dwindling economy, they would hurt Pakistan in the long run. Pakistan’s economic salvation lies in long-term structural reforms, something that requires political will and has not been witnessed in Pakistan lately due to an incompetent political leadership and strained civil-military relations.

The incumbent government’s flawed approach in curbing money laundering would not be of much help either. The government’s focus is more on recovering money that has been stashed abroad than on preventing money laundering. There are many loopholes and deficiencies in the anti-money laundering laws and regulations in the country which need to be fixed urgently.

Lastly, Pakistan will have to start repayment of China-Pakistan Economic Corridor (CPEC) loans by 2023. Now, there is massive uncertainty at play here. If, for some reason, the CPEC projects do not deliver the fruits, the country would fall into a debt trap and it would be extremely difficult for Pakistan to get out of its economic troubles.

From where we stand right now, Pakistan’s economic future appears to hang by a thread.