Pakistan’s economy mostly encompasses agriculture-based. It is the fourth largest cotton producer, the fifth largest milk producer, eighth-largest rice producer, second-largest pea producer, and fourth-largest sugar-cane grower.
Despite the above, our economy is passing through low waters just because of unchecked turmoil on the political front, lack of consistent economic policies, rampant luxury items import and slow growth in exports. Lately, the economy has become fragile due to rupee depreciation, declining reserves, rising commodity prices, and revenue shortfalls. The biggest mounting issues are the power sector circular debt and the gas sector.
Unfortunately, since Pakistan came into being in 1947, no elected prime minister has ever completed their five-year terms in Islamabad, and Imran Khan is the latest casualty. Muhammad Shehbaz Sharif became present PM to complete the remaining period after Imran Khan’s departure. Let us see whether he completes his remaining time or announces an early election as desired by Imran Khan and some other parties.
PM Shehbaz Sharif, in his opening speech, announced several measures by augmenting the minimum wage at PKR 25,000 per month, a 10% increase in federal government employees’ salaries from April 1st, 2022. Besides, the PM made the Benazir Income Support card functional, launched a laptop scheme again for students, and vowed to address high electricity prices. However, some of the decisions announced in the opening speech could have been put on hold and will be reviewed in the upcoming budget.
Moreover, banking days have been increased to six per week, and all government officials/ bankers have been asked to work longer hours. These decisions indicate the extreme pressure he must be feeling, but these announcements should have been made soon after taking stock of the economy and not before that. The public had mixed reactions to these packages.
PM and coalition government reportedly have inherited some formidable challenges, an impossible task for his cabinet in the shortest period. These include, but are not limited to, a worsening economic crisis, growing political turmoil, deteriorating relations with the Western powers that PML-N can readily resolve, and the resurgence of militancy in some parts of the country, experts viewed.
On top of all this, we have no idea whether the ruling coalition that consists of disparate parties and groups with often-conflicting political and economic aims will stick together until the elections are called, experts narrated apprehensively.
We endorse expert’s views that improving the economy requires tough decisions, such as the immediate removal of the cap on electricity and petroleum prices and renegotiating a new loan with the IMF, which will be hard, if not impossible, without repairing diplomatic relations with the US and other Western powers.
With a growing current account deficit and foreign reserves falling to as low as $10.8 billion, the South Asian nation needs external finance. Finance Minister Miftah Ismail rightly suggested that we cut expenditures and development funds and revive an International Monetary Fund program on an urgent basis as Pakistan is waiting for the IMF to resume talks on its seventh review of the $6 billion rescue package agreed in July 2019. If the review is approved, the IMF will release over $900 million and unlock other external funding.
Our Finance Minister’s talks with International Monetary Fund will be an uphill task as IMF has set initial conditions for the revival of the USD 6bn loan program, including “an increase in fuel prices to break even, taxes restored, an amnesty scheme discontinued for industries, circular debt reduced, power rates raised, and fiscal savings ensured” to reverse the PTI government’s February 28th relief package completely.
A good suggestion from Karachi Chamber of Commerce and Industry (KCCI) President Muhammad Idrees is that the new government and business people need to interact to survive. We suggest the new government engage with the private sector to evolve a comprehensive strategy for the country’s economic revival to meet the multiple challenges the economy was facing. This included local and foreign debt, rising inflation, the falling value of the rupee, declining foreign exchange reserves, growing fiscal imbalances and dwindling foreign direct investments.
Finally, and importantly, the government needs to prepare a budget in 35 to 40 days, with a primary focus on revenue mobilisation and curtailment of expenditure while also supporting the lower strata of the population. In addition, several IMF conditions need to be incorporated into the upcoming budget, which Sharif’s rule can easily solve.