Economy in 2022

Pakistan started the year 2022 amid talk of default, slogged through the mid-year escaping default by a hair’s breadth and the third quarter averting default with help from the IMF, and is now closing the year amid renewed chatter about imminent default. One significant departure from last December is that the IMF’s Extended Fund Facility (EFF) was on a hiatus back then, but is on track now. Or is it? The markets are not sure, regardless of what Finance Minister Ishaq Dar has to say. To be sure, there are other differences between then and now. Since December 31, 2021, the rupee has slid from Rs176 to Rs226 to a dollar; and per-litre pump price of petrol has soared from Rs141 to Rs214, and of diesel from Rs131 to Rs227. And yet, Finance Minister Dar insists the situation is tough but not desperate.

If we take a look back at the last twelve months, the signal success of the year was the revival of the life-line EFF programme, buying Pakistan precious months to get its act together. Sadly, however, those months seem almost over but the Augean stables of the country’s economy are as dirty as ever. Our tax-to-GDP ratio is still unenviable and our finance minister still talks about macroeconomic stabilisation wistfully, but there is no attempt to look for new revenues to fund even a tenth of the reconstruction effort necessitated by the recent floods.

The finance minister makes much of how undervalued the rupee is, but his tough talk on that front is driving a significant proportion of remittances and private holdings into the grey market. The overall direction of the current financial policies looks very much geared towards pandering to the ballot box rather than being concerned with stabilization. Is it this sort of apparent lack of spine in the face of tough political decisions that has given rise to whispers about a technocratic setup? God knows Pakistan has seen enough technocratic shenanigans to know no extra-parliamentary dispensation can exorcise the demons haunting the country’s economy.

But, equally, no parliamentary dispensation beholden to the whims of the mob and devoid of the political will to make the right call at the right time can pull it off either. Prime Minister Shehbaz Sharif must realize that what his government needs right now is strong political stewardship, and not popular political point scoring. Consider, for instance, how the government reviles former prime minister Imran Khan for his disastrous freeze on petroleum prices, but continues the same policy for several more months to showcase its own pro-people credentials. The sooner our politicians grow out of this behaviour, the better it will be for our republic.

Back to indicators, the stocks are shedding value but gold is appreciating, reflecting how cautious investors are hedging their bets. KSE-100 Index has plummeted from 44,596 to 39,802 points since December 2021, but gold has shot up from Rs108,196 to Rs156,636 per 10 gm or from Rs126,200 to Rs182,700 per tola. Dar has been exceptionally averse to sharing the roadmap he has charted to pull the economy out of the woods. All he says is that inflows will materialize in time to suffice for outflows, never mind that the central bank’s forex holdings have been stretched paper thin. To be fair, Dar was dealt a bad hand: PDM strategists could not have foreseen the climate catastrophe that hit Pakistan this monsoon, nor could they have planned for the adverse effects of the Ukraine war, the looming global recession, or Covid-19 coming back to take such a terrible toll on China’s economy. Also, the scorched-earth political strategy adopted by Imran Khan since his ouster has inflicted inestimable damage on the country’s economy – and his camp is the chief source of the current chatter about default.

But now that Dar is at the helm of the economy, it is up to him to improvise and make the most of a bad situation. He must know that inflation has almost doubled from around 12 per cent last December to nearly 24 per cent now, likely becoming entrenched so that it may take until next December to unwind. Going by conventional wisdom, mending fences with the IMF is pretty much Pakistan’s only shortcut to pacifying the markets and making some headway towards stabilization in short order. But Dar has successfully challenged conventional wisdom in the past. If he can dream up an outside-the-box solution to Pakistan’s external financing conundrum in a hurry, the economy that was on track back in 2017 to generate the world’s 18th largest GDP by 2023 may at least rise to its feet that year against all odds, kicking the shackles of IMF programmes.