A deepening crisis
While briefing the National Assembly Standing Committee on Finance a few days ago, the State Bank Governor said that there will be around dollar 12 billion financing gap in the external sector for the current fiscal year. He did not specify how this gap will be bridged but stated that there will be no issue as the country has foreign exchange reserves of dollar 14.5 billion. But the SBP Governor did not categorically rule out the possibility of going to the capital market again and said that there is no immediate need of short-term commercial borrowings subsequent to capital market transactions of Euro and Sukuk bonds.
Since many issues of critical importance remained to be discussed, the Committee decided to hold a detailed briefing by the Finance Minister, EAD and the SBP on loans and financing requirements of the country in the next meeting. Such a briefing is of vital importance as all relevant government departments, including the present management of the SBP usually, paint a rosy picture of economy. As such, their assessment needs to be fully reviewed and scrutinised. Recently, Dr Hafiz Pasha, a renowned economist and former Finance Minister of the country, while speaking at a seminar warned that the government will run out of foreign currency reserves which will trigger a financial crisis.
According to him, Pakistan's external financing needs will be dollar 32 billion for the next 18 months, of which only dollar 8 billion will come through the CPEC and FDI whereas the government will have to resort to borrowings to cover the rest.
There is a consensus of opinion among the country's leading economists that Pakistan is facing a serious external sector crisis which, unlike the previous ones, may roll on for a long time and the IMF may not be as generous as in the past. In all likelihood, the government will run out of foreign currency reserves in less than a year's time, triggering a financial collapse. The country has already been facing difficulties in managing its external account due partly to mounting foreign debt repayments and a widening current account deficit. To make matters worse, the government's response to the impending crisis is both slow and inadequate. It has recently imposed a regulatory duty on certain kinds of imports, offered PM's export package and lately devalued the currency by only 5 percent and that too probably under the IMF pressure. Such half-hearted measures may release some pressure on the external sector but provide no durable answer to the enormity of challenge.
The economy is in a double bind. The only way out of the nutcracker for the government is toinitiate the long overdue structural reforms. Otherwise, the situation would spin totally out of control. The present policy of ad hocism could delay the problem for a few months more but cannot resolve the real issue in the medium to longterm. Also, the government needs to tell the truth as there is a vast difference between the estimates of the financing gap made by the SBP and the country's renowned economists who openly say that over the past four and half years, the government has pursued a path of presenting unrealistic and fabricated statistics.
Sensitive indicators like debt-to-GDP ratio, inflation and economic growth are manipulated and fudged. The need of the hour is to come clean. The government must move quickly to dispel the impression that it is playing around with economic figure to save its political image. It must come out with full disclosures to restore the credibility of official statistics.