With Pakistan’s central bank reserves having fallen to 6.7 Billion dollars and the country being unable to clear imports stuck at Karachi port, it is clear that we have travelled back in time to 1998. Even though time travel to the past is a scientific impossibility as per most views somehow we Pakistanis have once again done the impossible and gone back in time to when Pakistan was on the verge of default and Ishaq dar was the finance minister. Back then the finance minister in the prime of his youth also made big promises upon coming into office but in the end, as is the case with most youthful rigor and passion, ended up facing the harsh realities of the financial world and had to run to Saudi Arabia for free oil and dollars. He also ended up seizing peoples hard earned money in dollar and gold accounts in a bid to keep the country running but ended up causing irreparable damage to peoples trust in the country’s financial system and private dollar reserves held by individuals in banks have never recovered since that fateful day 24 years ago. Mr. Dar would again assume office in 2013 when the PML-N came into power once more and followed unique but similarly disastrous policies of artificially controlling the country’s exchange rate which led to huge jump in current account deficit and played a major role in bringing Pakistan to where it is today; straddled with debts and being unable to pay for imported onions.
Now it seems the honorable finance minister plans to finish the job he started twenty four years ago by ensuring that he achieves that feat which no other has in 75 years of this country’s existence; a default. Mr. Dar claimed on national television that the country doesn’t need the assistance of the IMF or its associated multilateral lenders such as the World Bank as he believes he can arrange alternative sources of funding from bilateral countries without undertaking the necessary reforms that would ensure increased multilateral funding as well as dollar inflows. However the alternative plan was revealed a few weeks later to be nothing more than asking the Saudis and the Chinese to fund our extravagant lifestyle by pouring more dollars into an account from which you have as much chances of getting a return as from a center of a black hole. Regardless of whether the overtures to the Saudis work or not Pakistan is in dire need of undertaking short term reforms in order to prevent this crisis from accelerating further.
There is firstly a dire need to reduce market opening timings from the current all night long opening timings to only 8 hours a day from 8am to 6pm excluding pharmacies and essential services. All over the world, even in the developed western countries or the wealthy Middle East, malls and shopping centers are not allowed to run all night long. By adopting this measure three and half billion dollars will be saved annually which is the same amount the IMF has to give us for the remaining duration of the program. Secondly there is a need to encourage public transport in order to reduce fuel consumption by private cars. Countries like Japan have a vast network of buses, trains and domestic flights which coupled with great taxation on use of highways and private vehicles ensures that most Japanese prefer using public transport over private thus reducing the oil import bill. There is also a need to impose import quotas limiting the amount and type of imports to prioritize energy, medicine and export related machinery imports over all other non-essential import items. Monthly quotas should be assigned for the short term to ensure that we run current account surplus rather than deficits each month for the remainder of the financial year. There is also a need to allow currency devaluation since it increases the cost of imported products and acts as a natural deterrent to dollar outflow. Allowing the market to decide the rate of rupee will also lead to an additional 1 billion dollars flowing into Pakistan each month through legal channels as was the case last year and thus greatly increase dollar liquidity in the market for importers in the long run. State owned assets like the Roosevelt hotel in New York and other government owned foreign properties need to be sold off at market prices to generate dollar proceeds on an emergency basis. State owned enterprises like steel mills as well as oil based power plants amongst other also need to be sold to international customers in order to raise four billion dollars; something which was promised by the government to the IMF when the current program began. Increasing tax net and ensuring transparency in government accounts also needs to be done on an immediate basis so that World Bank and IMF funding can resume and we can afford to both import essentials and pay off maturing foreign debt. Lastly we need to renegotiate the seventy three billion dollars in debt that will be maturing in the next three years since we don’t have the capacity to pay it off even with all these measures. Commercial lenders may not agree to such moves but multilateral and bilateral lenders will be willing to rollover the debt much like china and Saudi Arabia have done recently which will ensure that we don’t at least default like Sri Lanka and get locked out of international markets in the future.
Even though the situation may appear dire at the moment, with enough political will and timely actions a crisis can still be averted and Pakistan can return to achieving higher growth rates as well as a sound economy. The entire world is suffering from an economic slump at the moment and the ones to come out of it in one piece will be those states that are proactive in taking the right steps. Let us hope Pakistan is one of them.
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