News Analysis: Pakistan’s dangerous economic stalemate?

WHEN IMF’s mission to Pakistan departed on Friday leaving Finance Minister Ishaq Dar behind to put on a brave face, the writing on the wall was much too glaring to be ignored.

As Pakistan struggles to emerge from a dangerous economic stalemate, a failure to button up a resumption of the IMF agreement has badly exposed gaps in the country’s political and economic structure.

Notwithstanding Dar’s announcement on Friday of the IMF talks due to be resumed ‘virtually’ on Monday, a reality check came immediately. Pakistan’s stocks slipped by more than one percent while the rupee came under pressure in an immediate sign of mounting nervousness among investors.

Irrespective of how much ground was covered between the two sides during ten days of hectic IMF-Pakistan consultations in Islamabad, Pakistan continues to reel under the fallout from a virtually stalled IMF loan.

Much hinges on the IMF’s loan as even close friends of Pakistan in the recent past have been hesitant to extend further loans till a deal is finalised with the Washington based lender.

The contours of Pakistan’s present day acrimonious politics have much to do with prevailing economic trends. On Friday, Dar yet again noted the ‘credibility gap’ left by the government of former prime minister Imran Khan as it dealt with the IMF.

While the Khan government cannot be absolved of responsibility for economic slippages during its tenure, equally vital are the slippages during Dar’s watch that have only harmed Pakistan’s relationship with the IMF.

Dar’s era as finance minister following the departure of former finance minister Miftah Ismail has seen a visible avoidance of unpopular steps such as closing the gap around electricity and gas related losses. Ahead of the coming parliamentary elections due later this year, such delays have only widened the fiscal gap in Pakistan’s national balance sheet.

Meanwhile, Dar’s reported push to clamp down hard on the exchange rate of the Pakistani rupee only caused a proliferation of the foreign currency black market across Pakistan. Once the pressure came off just last month, the rupee slipped by roughly 15 percent.

Today, left with official reserves that are equivalent to less than three weeks of imports’ cost, Pakistan has come perilously close to a default on foreign payments. The only sliver of hope lies in a quick conclusion of talks with the IMF for Pakistan to begin seeing some normalcy to its foreign payments situation.

But that alone will just mark a beginning on a long road ahead. In the near term, Pakistan would need to seek more foreign loans just to tide over till the end of the financial year in June 2023.

Simultaneously, there is a pressing need for Pakistan’s ruling structure to begin considering an international initiative to seek a restructuring of foreign debt repayments in the coming years. Given the vast gap between Pakistan’s likely future resources and its mounting needs, keeping up with ever colossal debt repayments will almost be an impossible task.

In this exercise amid palpable signs of fatigue among key global players over Pakistan’s refusal to change, the country’s internal dynamics need to be transformed quickly. In brief, the small community of direct taxpayers must be immediately widened to convince the world that past tolerance for evasion has given way to a far more aggressive push against evasion.

Besides, a push to control the luxury lifestyles of the rich and the mighty must be embraced to give way to widespread modesty. The proliferation of luxury automobiles across Pakistan in recent years, thanks to the inclusion of the ‘non tax filer’ category at twice the tax rate of tax filers, has cost Pakistan heavily. Though the distinction was once believed to have been coined by Dar, there’s no room left for extending such privileges across crisis-hit Pakistan any longer.

Finally, election years previously have coincided with periods of reckless developmental spending. Given Pakistan’s precarious financial situation, emergency measures must be enforced immediately to keep a very tight lid on the proverbial ‘people oriented projects’.

Judging by past experience, such development spending in previous times has more than partially ended up in the pockets of the well-connected high and mighty. In the words of a departing former UN agency head who served in Pakistan, just below half of the funds dedicated for development were known to have ended up in the pockets of the well-endowed and well-connected.

In this moment of crisis, Pakistan’s political leaders must squarely focus tightly on keeping the country financially afloat. And yet, some of the messages from key decision makers recently have just pointed to the contrary.

In a bizarre step, Prime Minister Shehbaz Sharif’s recent announcement to head to Turkey to personally visit earthquake shattered areas, stands out as a case in point. Reportedly, the plan was quietly shelved after he was privately advised by the Turks that faced with the primary task of saving lives, they had no time to extend the pomp and splendor typically extended to high profile overseas visitors.

As for Finance Minister Dar in a visible pretense to prove that all was well, on the final day of the IMF’s Pakistan visit on Thursday, he also presided over a ‘road safety conference’ for parliamentarians at a top luxury hotel in Islamabad.

For now, the economic crisis is huge enough to only give sleepless nights to those who rule Pakistan or at least carry the pretence of doing so.