While Pakistan’s economy continuous to slide to the edge of the precipice no economic leadership is in evidence to carefully manage this increasingly fragile phase.

The caretaker government has taken an inordinate amount of time to even appoint anyone to take charge of the finance ministry. This is astonishing when widening internal and external financial imbalances are accelerating the downward economic spiral and heightening the threat to the country’s stability.

Pakistan’s external position has seen a sharp deterioration in recent months taking the country a step closer to a balance of payments crisis. With a series of foreign debt repayments due in the months ahead the government will be unable to meet its external financing requirements in the face of depleting reserves.

Reserves held by the State Bank have now sunk to $6.6 billion; a level many experts expected would be reached in June, at the end of the current fiscal year. Net reserves have therefore dwindled sooner and faster then forecast. This alarming trend is reflected in a steep ten-day fall between March 27 and April 7 when reserves declined by over $700 million.

The accelerated rate at which reserves have eroded is explained in part by the bunching of repayments on external liabilities, including to the International Monetary Fund (IMF). But it is also due to the State Bank’s exchange market interventions to shore up the rupee. This has involved an inevitable trade off. Running down reserves to buy rupees has exposed the economy to great danger by pushing the reserve level into the range that precipitated the 2008 balance of payments crisis. With repayments of around $900 million due to the Fund by June, foreign exchange reserves are expected to whittle down to less than $5.5 billion. This will barely cover a month and a half of imports – taking it close to a psychological barrier that can precipitate a rapid erosion of confidence, similar to what happened five years ago. In the 2008 crisis, net reserves had plunged to around $4 billion. This underscores that today the economy has already drifted into the danger zone, where markets were driven to panic in the past. Without any reassuring hand at the wheel the economy appears even more vulnerable. The caretaker government’s instinctive response to this situation might be to turn to the IMF for an emergency bailout. But no package can be negotiated in its remaining life span. The interim government also has no mandate to do so. The Fund would almost certainly wait for a new government to be installed before concluding any package.

But the interim government can and should take immediate measures to stabilise the economy by controlling expenditure and reducing the need for additional domestic borrowing. Faced with the choice between holding up the exchange rate and running down foreign exchange reserves it should protect reserves. In the trade-off between giving more bailouts to public sector enterprises and reduce borrowing it should opt for the latter. This will provide some breathing space to the next government to take durable steps to stabilise the economy.

In dealing with this fraught economic situation the incoming administration will have to balance the urgent and the important, combine stabilisation measures with steps to speed up growth. Its most immediate task will be to address the budget and balance of payments deficits.

While stabilisation is essential for creating an environment to revive growth the government should not limit itself to this but use the opportunity to fix the underlying problems that have driven the country into the vicious circle of chronic financial crises and repeated IMF bailouts.

If the next government can announce a set of structural reforms in its honeymoon window, this could in time place Pakistan on a higher growth trajectory. The current 2-3 per cent annual rate of GDP growth is much below the estimated seven per cent needed to absorb the two million new entrants into the labour market every year.

Relying on just a quick-fix deal with the IMF and not a comprehensive set of home grown structural reforms especially in the energy sector would be an extraordinary missed opportunity. The first hundred days of the new government should, therefore, aim to launch a broad set of economic reforms to provide a new policy direction to the country. A new strategy should deal with both symptoms and causes otherwise the country will be condemned to lurch from one economic crisis to another, with profound implications for its longer-term stability.

(Dr Maleeha Lodhi served as Pakistan’s ambassador to the US and United Kingdom)

http://www.thefrontierpost.com/category/40/

China and India are known for their manufacturing and service Industries. The hunger to move up in the innovation cycle is seen in both. However the lesson of the history is that you cannot get your economies right if you do not get your Politics right.

Pakistan has been a serious victim of bad governance, ethnic rivalries, absence of rule of law and continued as well as strategic campaigns, therefore could not find the magic formula for combining Political control and economic growth, hence could not have a bright place under the sun. It’s a social time bomb to explode Pretty soon as its democracy is, in reality, a comedy of errors and anarchy where loot and plunder remains the order of day.

Pakistan’s Government Seldom does a right yet there is so much it does wrong, it’s a strong society bound by a weak state and the style of governance defeats the national agenda thoroughly. It is almost at the brink of ruin because when a nation is weak from top to bottom it becomes the hub of conspiracies and a soft target for the vested interests and economic tigers who want to lay their hands on its natural resources.

Pakistan today is in dire need of Economic reform. The fiscal control moves hand in hand with a greater need for reforms and investments. In the Pakistani context this Parameter is severely faulted where fiscal discipline, Government debt and poorly executed Social Policies are bleeding the economic landscape. Reforms are firstly slow to come by and secondly its implementation tremendously lacks sincerity and earnestness.

On the other hand there has always been a greater desire on the Part of the Governments to control rather than facilitate economic activities - typical case of more Government and less governance which gets accentuated by pervasive corruption, lethargic ‘ governance, dynastic politics, lop sided economic opportunities and a feeble middle class revolt against the above. Nations thrive when they develop “inclusive” Political and Economic institutions, and they fail when those institutions become “extractive” and concentrate Power and opportunity in the hands of only a few.

If the Political institutions are corrupt, partisan and party centric, national goals are always mired in a phase of loot.

The future of our economy and its reforms should not be decided by the Finance Minister alone hailing from World Bank or some other Bankers and economists but it should be decided through a dialogue process among all the sectors and stake holders hailing from a variety of background.
No economy can flourish unless the society is perfectly stable with strict rule of law prevailing and in this context whatever needs to be fixed must be fixed. When and if Politics becomes an arena of investment for monetary gains, the Political parties dole out huge amounts to rally the people around by making lofty promises to ultimately recoup their investments and no economic goals can be achieved.

By traversing through the corridors of history, it becomes abundantly evident that from the very start of Basic Democracy formula of General Ayub Khan down to two terms each of PPP and PML (N) including dictatorial regimes of Zia and Musharraf; favours were dished out to a handful of influential persons in terms of Route Permits, development funds, Rashan Depo, mega contracts and allotments to soft & defaulted bank loans and Industrial licenses thus widening the gap of unfair distribution of national wealth.

We are a resourceful people, we are the righteous people, we are a resolute lot of people, who do not shrink from the necessary however hard and late it may be. We are a moral people who bravely enter the precincts where idealism collides with realism and come out enhanced. In fact, we are immature people always demanding the nourishment of myth and legend that exalts us. Realities intimidate and unsettle us. This is indeed high time for us to pressurize all leading Political Parties to come up with a sound, viable and targeted economic agenda before going to Polls. The People voting for a particular agenda ought to monitor the implementation of promised goals. Its more than forty years that Promise of food, shelter and clothing for the masses could not be fulfilled yet such parties return to power time and again on the same slogan.

The author has carefully gone through the manifesto of all the Political Parties and can opine that PTI’s programme is the most progressive sort in intent and purpose. Imran Khan is truly a target oriented personality and his sincerity dedication to tasks ahead, honesty and leadership qualities are proven in Public Affairs. The nation has already tested religious parties, PPP and Muslim League (N) many a times and all have disappointed miserably. Seeing the track record it is surely expected that the youth of Pakistan under the leadership of Mr. Khan would bring about a long awaited change in the country for the better.

http://www.thefrontierpost.com/category/40/

Alarm bells for the economy

By Hussain H Zaidi

In the face of sluggish export growth, high trade deficit and meagre foreign direct investment (FDI) inflows, one factor that has sustained the economy and helped ease pressures on the external account over the years is remittances sent by overseas Pakistanis. However, with the economic slowdown in the Gulf States, a new challenge is emerging for the national economy.

Traditionally, the Gulf States, particularly Saudi Arabia and the United Arab Emirates (UAE), have been among the largest sources of remittance inflows into Pakistan. The Gulf countries have, by and large, been heavily dependent upon one commodity – oil – for keeping the wheels of the economy moving, job creation and exports.

The enormous oil wealth, together with distaste for manual work among the local population, made it possible as well as necessary for these economies to create substantial employment opportunities for foreign workers. The Gulf States have been a favourite destination for unskilled and low-skilled workers from South Asia, including Pakistan.

However, the slump in oil prices in recent years is beginning to cast its shadow on Gulf economies. Saudi Arabia, the largest Gulf economy, which posted modest economic growth of 3.6 and 3.5 percent in 2014 and 2015 respectively, is projected to grow by 1.2 and 2 percent in 2016 and 2017 respectively (IMF: World Economic Outlook July 2016).

This lacklustre growth is forcing Gulf States to lay off foreign labour. Many an enterprise is finding it difficult to pay wages to foreign workers. For countries like Pakistan, which have exported a considerable chunk of their workforce to the region, alarm bells are ringing. One just needs to look at recent figures to endorse the view.

In financial year 2015-16 (FY16), remittances reached the record level of $19.9 billion. However, compared with the $18.5 billion remittance inflow for the preceding year, the increase in remittances was 7.5 percent. On the other hand, between FY07 and FY15, remittances registered average annual growth of 16.5 percent including 17 percent growth in FY15. This means growth in remittances fell by 9.5 percentage points in FY16.

In July 2016, the first month of the new financial year (FY17), $1.32 billion remittances were received – compared with $2.07 billion in June 2016, thus posting a decrease of 57 percent. Likewise, in July 2015, $1.67 billion remittances were received. Thus, remittances in July 2016 registered year-on-year negative growth of 26 percent.

In August 2016, remittances went up to $1.76 billion posting 5.4 percent growth over the preceding month’s figures. On a year-on-year basis, remittances grew by 15 percent. However, in September 2016, remittances went down to $1.60 billion. On a year-on-year basis, remittances decreased by 9 percent (remittances in September 2016 were $1.77 billion). Cumulatively, in the first quarter of the current financial year (FY17- July-September), $4.69 billion remittances were received, marking a negative growth of 5.4 percent over $4.96 billion remittances during the first quarter of FY16.

Gulf countries have been the major source of remittance inflows into Pakistan. Out of the $18.5 billion remittances received by Pakistan in FY2015, $11.9 billion (64 percent of the total) were sent by Pakistanis living in GCC countries including $5.6 billion by those residing in Saudi Arabia, $4.2 billion in the UAE and $2.1 billion living in other Gulf States.

In July 2016, out of total $1.32 billion remittances, the source of $840 million was the Gulf region including $378.7 million from Saudi Arabia, $293.7 million from the UAE and $169.6 million from other GCC states. In comparison, out of $2.07 billion remittances in June 2016, $1.24 billion were from GCC countries: Saudi Arabia ($582.8 million), UAE ($434.9 million), and other GCC countries ($197.8 million). Thus out of the $750 million decrease in remittances in July 2016, $408 million is accounted for by the fall in remittances from the Gulf countries. In particular, remittances from Saudi Arabia went down by $204 million.

In July-September 2016, out of a total of $4.69 billion remittances, the source of $2.95 billion was the Gulf region including $1.32 billion from Saudi Arabia, $1.05 billion from the UAE and $574.34 million from other GCC states. In comparison, out of $4.96 billion remittances in July-September 2015, $3.10 billion were from GCC countries: Saudi Arabia ($1.44 billion), UAE ($1.11 billion), and other GCC countries ($592.9 million). Thus out of $270 million decrease in remittances in July-September 2016, $150 million is accounted for by the fall in remittances from the Gulf countries. In particular, remittances from Saudi Arabia went down by $390 million.

Pakistan is not the only South Asian country that has been hit by slow growth in GCC countries. Other economies in the region are also bearing the brunt, as GCC-South Asia has been one of the top remittances corridors in the world. India, globally the largest recipient of remittances, saw its remittance inflows in 2015 went down for the first time since 2009. Sri Lanka also experienced a fall in remittances; while in case of Bangladesh, growth in remittances in 2015 fell to 2.5 percent compared with 8 percent in 2014.

However, for Pakistan, the 8th largest recipient of remittances worldwide and 7th among developing counties, the fall in remittances is likely to hit the economy harder because of unsatisfactory performance on other key external account indicators, such as exports and FDI. Remittances have been the principal source of financing Pakistan’s trade deficit. In FY2015, Pakistan ran trade deficit of $17.2 billion, which was financed by $18.7 billion remittances. Likewise, in FY2016, $18.5 billion trade deficit was recorded, which was financed courtesy $19.9 billion remittances.

Likewise, in the first quarter of the current fiscal year, trade deficit of $5.15 billion was recorded ($5.04 billion exports and $10.19 billion imports), which was chiefly financed through $4.69 billion remittances. Not only that, the share of remittances in GDP (7 percent) in FY2016 approximates that of trade deficit in GDP (6.5 percent).

At a time when the government has decided to say goodbye to the IMF after the conclusion of the current programme on September 30, the fall in remittances will not bode well for the country’s economy and the balance of payment position.

The writer is a graduate from a Western European university.

Source: Alarm bells for the economy

__________________
To succeed,look at things not as they are,but as they can be.:)