The myth about the resilience of Pakistan’s economy has been busted. We have reached a stage where experts are at a loss on how to move ahead. All paths lead to a disaster. The system is totally dependent on loans. The moment loans are stopped there will be a disaster.

In 2023, the economy went from bad to worse. It continues to be on a virtual ventilator. The state expenditure continues to grow without a similar increase in revenues. The situation has not improved since the Pakistan Democratic Movement government handed over the reins to the caretakers. Uncertainty has scaled new heights.

Debt-servicing is currently the biggest issue.The foreign exchange reserves remained low throughout the year despite the IMF expressing satisfaction with policy tweaks. Over the next 30 months, we have to make over $60 billion foreign debt repayments. The revenues increased during the current year in line with the fixed targets. However, the targets were not in line with the resource requirements. It has been argued that it is prudent to fix realistic targets. However, there was no sign of the approach on the expenditure side and the fiscal gap continued to widen.

The crises include a five-decade high inflation rate (over 30 percent), the highest ever key policy rate (22 percent), enhanced rated of taxes and a huge devaluation of the domestic currency (Rs285) against the US dollar.

Credit must be given to the caretaker government for sticking to the International Monetary Fund prescription and keeping the economy solvent. The dark clouds of default that loomed large on the fiscal horizon have been avoided.

However, some of the actions taken on the IMF demand have intensified the miseries of the masses. The petrol prices have made life difficult for commuters. High power rates now consume a major chunk of the monthly household budget. The high energy costs have made many industries globally uncompetitive. This has impacted the export volume. Once the unofficial restrictions on imports are lifted, the imbalance will be shocking.

Pakistan is at the mercy of donors.It cannot take independent decisions to provide relief to the poor. The rulers apparently have no option but to ensure resumption of the IMF programme to acquire the required foreign financing and to become, over the course of time, a self-reliant nation.

The poor remain unserved.Most of the subsidies benefit the poor as well as the rich. The subsidy on wheat, for instance, is available to all consumers. If it could be restricted to the poor, the quantum of relief might be adequate. Then there are wasteful subsidies given to students, armed forces and journalists on railway fare and to armed forces personnel on air fares. High tax-free salaries paid to some government functionaries are also a burden on the exchequer. Voices have been raised in the media over these injustices but remedial action has not followed.

The year 2023 saw little progress on the privatisation front. The economy continued to bear the burden of over Rs 2 trillion annually because of the losses suffered by public sector enterprises. This does not include the losses resulting from inefficiencies in profit-making public sector enterprises. The National Bank, for example, is currently the second largest bank in the country (after Habib Bank) but its profits are much less than smaller banks like the MCB and the United Bank.

Political instability remains the single largest threat to the economic survival of Pakistan. It is destabilising the economy, every passing day. Economic growth is likely to remain slow in the current fiscal year, much below 3 percent that hardly covers the annual population growth.

The year under review was devastating for small and medium enterprises. A number of businesses have partially or completely shut down due to the lack of access to foreign exchange to import raw materials and machinery. The corporate sector, however, made hefty profits. The decline in sales was made up by increasing the profit margins.

The performance of the capital market surprised many. The record levels reached by the Pakistan Stock Exchange were not in line with the current economic situation. The mystery deepened when large foreign portfolio investments also entered the country. However, after a while most of the foreign investors liquidated their assets after some profit taking. Still the PSX index is at a level higher than under any past government.

A special investment facilitation council was established by the previous government. Most of the follow up work was done during the caretaker regime. Millions of acres of agricultural land has been reportedly handed over to foreign investors. Positive results are expected by the end of the next year. MoU sinvolving billions of dollars have been signed with various foreign governments to this end. The potential investors are perhaps awaiting the outcome of the general elections to assess the continuity of policies before committing their resources.

The textile sector continues to ask for subsidies, instead of improving efficiencies. A number of spinning units closed down during 2023.

The only silver lining was seen in the IT sector where a number of bottlenecks in IT exports were removed.We can probably expect IT exports to be the second highest (after textiles) in three years.If the momentum continues IT exports may overtake textiles just as they did in India at the start of this century. This will, however, bring dollars but not a large number of jobs.

According to the World Bank, the current economic situation is because of long standing structural weaknesses. The country will continue to be stressed because of low foreign exchange reserves, unstable currency and high inflation. The ever increasing debt is another problem that has made debt-servicing a major issue. In fact, the government has to beg the creditors to restructure loans on a yearly basis. Some of the short-term loans were taken at high interest rates. We have been paying the interest but the outstanding amount has remained the same.

Under these circumstances we cannot expect the GDP to grow at a healthy pace. Exports remained under severe stress during 2-23. On top of that domestic production suffered. The way forward is to incentivise agriculture. The government has announced some incentives for corporate farming but the miseries of the traditional small farmers have worsened.

Power rates have been raised along with water charges. The availability of quality seeds remains a dream. The prices of fertiliser have risen despite provision of gas to the fertiliser sector at highly subsidised rates.

There is a need to expand the tax base to reflect an increase in the tax to GDP ratio. Merely adding tax filers who pay nothing will not work. There are apparently millions of tax evaders paying rent to the tax staff. It is important to make tax collectors accountable.

Power production and distribution has remained pathetic. It has not improved even following high raises in power and gas tariffs. No action has been taken to reduce the system losses. The planners are probably aware that the losses are due mainly to corruption that has been institutionalised. Without reforming the power sector, we cannot expect to restore the competitiveness of our manufacturing sector.

The shift from fossil fuels to local alternatives is very slow. Only lip service has been paid to solar energy or the utilisation of the biomass potential in the country.

The writer is a senior economic reporter at The News International, Lahore