Various international agencies, including the Asian Development Bank, have recently underlined the economic challenges facing Pakistan. These include poor governance that underlies the institutional bottlenecks facing the country ranging from deliberate obstacles placed to circumvent investigation on corruption-related matters, Pakistan International Airlines' rising losses, etc, and poor performance due to senior appointments made on the basis of nepotism rather than on merit. The other major issue is lack of economic growth momentum which belies persistent claims by the government that growth had reached levels not seen in the country in decades.
Emphasising that difficult days are ahead, economists have identified some sectors that can help overcome the rising trade deficit. In the given circumstances the industry is the main victim of the deepening economic crisis whereas rupee depreciation is adding to economic miseries of the country. Economic experts' observations are not off the mark. Pakistan governments often depend on borrowing from international agencies which force us to adopt policies that are detrimental to the industry such as massive increases in electricity and gas tariffs. Surely, an economy cannot grow with a debt burden of over $85 billion whose servicing eats up a huge part of the federal budget. It is true that there is no overnight solution to the economic woes, but there is a need to set direction and introduce economic reforms to boost trade and industry.
Pakistan faces many economic challenges, including a decline in exports and foreign direct investment, low tax-to-gross domestic product ratio and inefficiency of public sector enterprises. These challenges need to be addressed through a meaningful partnership and dialogue between the government and the private sector. There are a number of other issues that must be tackled head-on, specially maintaining the growth momentum following less-than-targeted expansion of the agriculture and manufacturing sectors. Another big challenge is the widening gap between exports and imports.
In a wider context, the economic landscape inPakistan is set to change drastically in the coming days following the depreciation of the rupee by 7 to 10 perceent over the past few weeks. Experts say the drop in the rupee's value will make imports expensive, push inflation to the annual target of 6% sometime in the middle of current fiscal year and force the central bank to increase interest rate by March 2018. On the other hand, rupee devaluation will help the government reduce pressure on the external trade front, rein in the fast widening current account deficit, minimise pressure on foreign exchange reserves, attract higher remittances from Pakistanis abroad and delay the floating of more Eurobonds. It will also help reduce imports, revive exports and check the widening current account deficit. It is relevant to add here that the current account deficit widened 122% in the first four months (July-October) of the current fiscal year 201718 to $5.01 billion compared to $2.26 billion in the same period of previous year.
At the same time, the depreciation of the rupee will help increase remittances as those who had chosen to send money back home via hundi/hawala system can now rely on proper banking channels to enjoy a higher exchange rate. However, the need now is to manage the money market in such a way that there is no further cut in the rupee's value. For, if the rupee continues to slide, imports will become very expensive and inflation will increase, adding to the consumer's misery. There is also an urgent need to devise a new policy package to boost exports and attract foreign investment essential for rapid economic growth.