Economic Revival

The State Bank of Pakistan needs to decide whether to adhere to international donors’ suggest a path or devise a set of policies that work towards an economically independent Pakistan, presenting the country’s leadership to a complicated soul-searching process, which is more about the character that the ‘future Pakistan’ will be formulated upon and its integrity as a resilient, self-reliant nation.

The question with which one needs to base the country’s economic and financial planning is whether there is enough capital expenditure taking place that could lead to generate adequate cash flows for the government, which will in return manage this debt and retire it in the next 10-15 years, rather than accumulating more. Before Covid led trade disruptions, the current account deficit stood between 4000 - 6000 million USD per month, a Debt-to-GDP ratio of almost 80 percent, reserves sufficient for a month and half of oil imports and an inflation rate of 11 percent. This was along with macro risks that include political instability, currency instability, labour productivity and lack of infrastructure for Foreign Direct Investment. SBP’s direction addresses currency risk (in the short term), by refusing to lend to the government, as it will not have to print excessively to fund the current account deficit. This results in stabilizing the Pakistani Rupee (PKR), but it does not lead to a growth environment and will substantially increase the Debt-to-GDP ratio of the country. The debt accumulated in the last 30 years by the government of Pakistan already has a hefty price.

Economic agendas of nations need to be understood and it is time that the leadership brings this in=to perspective before we opt for a set of policies. In Pakistan there is presence of various international interests, along with means to implement their agendas in the country. In the mist of this presence, we fail to devise our own economic path. Implications of US hegemony due to Pakistan-China Economic plans is a factor that needs to be considered when envisioning the region from an economic warfare perspective. This leads to an apparent question with regard to progress of SBP’S current approach that whether it is at the expense of CPEC? Recent developments with China indicate reluctance to approve $6 billion loan for the Mainline-I (ML-I) railway track due to rising debt levels of the country and there is no news on the progress of 128 Million USD investment in Century Steel Mill being set up at Rashakhai Economic Zone.

What is required is a change of approach that could lead to correct economic financial planning rather than external assistance in terms of aid for which we need to look within. The focus needs to be towards the 200 million population market and promoting it for investment through private investors and commercial banks by cutting down interest rates and the bank reserve ratio. The automotive sector is an example. Its growth to date and future potential, if vertical integration is planned, could lead to production of parts that are currently imported, reducing the country’s import bill. This is one sector for initiation of the process; it would enable us to construct a path that could lead to reduction of import bills.

In Pakistan there is presence of various international interests, along with means to implement their agendas in the country.

During times of economic crisis, developed economies historically meet their deficits by printing money, which results in currency devaluation and a globalized economic order. Devaluation of currency is used as a weapon by economies to make their exports competitive in international markets. This leads to inflation. Considering the magnitude of the crisis, we shall have to live with it till the foundations of growth are laid down. This would include a) banks begin to lend rather than invest in government bonds through an expansionary monetary policy, b) Loopholes in the tax information structure of the FBR are eliminated, c) CPEC is underway, and d) a transition from import-based to export-led economy is taking shape.

Once the afore-mentioned policy begins to bring in results, contractionary policy execution can be considered. In 1979, after years of high inflation, Paul Volcker the chairman of the US’s Federal Reserve increased interest rates to 20%, to control inflation. The inflation-adjusted yield on bank accounts was very high at that level, which attracted savings and strengthened the dollar from its weakened state, a path the SBP can adopt to control inflation.

In essence, if one considers how we are placed and where we are headed, it is merely a matter of choice, whether we embark on a more challenging journey to shape the character of our nation or look for immediate remedies that might further plague its economic foundation but will assist in moving forward. If we allow ourselves to be exploited, we cannot blame those who exploit us.