With the nation all set to go to the polls in the next couple of days, the next government would be faced with a number of challenges on the national political theatre. Those on top of the list are terrorism and energy crises. But the most pressing challenge is the country’s shattered economy. 

At present the country is facing with a twin deficit challenge - the budget deficit as well as current account deficit. According to the State Bank of Pakistan's estimates the current account deficit has gone over US $ 16 billion while foreign exchange reserves have squeezed down to $10 billion which is depleted by 3.16 percept on almost weekly bases.

“This alarming situation speaks well for the facts that all is not well”, said Dr. Shabbir Ahmad Khan, Director Area Study Centre, University of Peshawar, Khyber Pakhtunkhwa.

The rapid change in current account deficit and foreign exchange reserves had an adverse affect on the country’s export and import equilibrium. During the last one-year, Pakistan imported $50.7 billion worth of goods. On the contrary, the export counted only for $22.8 billion.

In the last few weeks Pakistan’s currency has witnessed a rapid devaluation. Pakistani rupee came down to 130 as against the US dollar. The economic experts attribute this to poor management and lack of proper mechanism.

An Islamabad based economist Mr. Zalmey Azad counts political stability, lack of proper energy infrastructure and limited trade due to lack of interest by foreign investors as the key reasons for the country’s economic crises.

A drastic decline in Foreign Direct Investment (FDI) further damaged the economy. The figures released by the State Bank recently show a decrease of $11.8 million in the last financial year ending June 30th.

According to the official estimates the FDI for the year 2016-17 was $ 3.451 billion but the amount for 2017-18 stood at $3.439 billion. On the other hand the foreign investors shifted $680.5 million from country in the year 2017-18 against $740.2 million in 2016-17.

The persistent political deadlocks and uncertain security situation during the last few years badly damaged the confidence of the foreign investors to invest in the current businesses or new projects.

The Asian development Bank in its recently published book titled, “Banking on the future of Asia and the Pacific: 50 Years of the Asian Development Bank”, stated that in Pakistan, periods of strong growth were interrupted by episodes of political instability”, adding, Development was also effected by frequent power shortages and difficulties in the agriculture sector”.

Pakistan’s placement on the grey list of the Financial Action Task force (FATF) has also multiplied its economic challenges. “Foreign investors would obviously invest in countries that enjoy political stability, ensure law and order situation, offer incentives and provide guarantees to their investors”, said professor Dr. Muhammad Naeem who teaches Economics at the University of Peshawar.

To pull the country out of the recent economic crises, Pakistani authorities were in regular contact with China to plead for $2 billion but China agreed only to just $1 billion.

This precarious situation leaves the country with hardly any option but to go the international Monetary Fund (IMF) and accept its tough conditions to run the state affairs.

To get rid of the current mess and avoid any future debacle, the government must have to announce an economic emergency. It has to increase its exports on emergency footings and extend its tax net. It’s an irony that only one million people pay income tax out of 220 million people living in Pakistan. It also needs a policy direction and a well thought out mechanism on how to stop money laundering. Massive corruption in state institutions eats up a major share of the taxpayer’s money every year. This needs to be stopped. The upcoming government needs to pay prior attention to rebuilding the shattered economy on war footings; otherwise this may have disastrous consequences for the entire Pakistani nation to bear in the time ahead.

07/22/2018 - Any reproduction, copy, transmission or translation of this publication is prohibited.

A currency trader counts Pakistani Rupee notes as he prepares an exchange of U.S dollars in Islamabad, Pakistan December 11, 2017
De Ashraf Ali