Economic challenge
The incoming PTI government faces a tough economic challenge. Over the last few months, the country's economic situation has worsened steeply as the foreign exchange reserves have depleted due to widening of current account deficit and repayment of previous loans. The current account deficit stood at $18 billion during previous fiscal year. Similarly, Pakistani rupee is depreciating as the dollar recently had gone beyond Rs130 last week. It is now back at Rs123 to the dollar. As of last week, foreign exchange reserves stood at $9.5 billion, which are enough to cover less than two months' imports bill. Reserves would come under further pressure as the country would have to repay two billion dollars of foreign loans in the next few weeks.
It is a matter of concern that Pakistan's debt has increased to an unsustainable level of Rs24.5 trillion or 72 percent of the total size of the economy. The public debt of Rs24.5 trillion includes domestic debt of Rs16.5 trillion and external debt of Rs8 trillion. A high official of the Finance Ministry recently said that debt would rise to 74 percent of the GDP during the ongoing fiscal year. It is relevant to note here that the Fiscal Responsibility and Debt Limitation Act, 2005 (FRDLA, 2005) had set the limit that public debt will not exceed 60 percent of the GDP. The economy of Pakistan is seriously constrained by the balance of payments disequilibrium. Experts have noted that whenever the real GDP grows above 5 percent, cracks start to appear on the external front. This shows that Pakistan's export structure does not support growth of the real economy beyond a certain threshold. The low-income elasticity of exports acts as a hurdle to rapid growth. The situation also implies that real growth in GDP above 5 percent requires foreign borrowing. That is the reason why the economy had to seek around $11.5 billion in external financing in FY18.
The PTI chairman has admitted that the country's economy is facing serious challenges. He said that fiscal and trade deficit are touching all time high levels, while the rupee is touching historic low and public debt is ballooning. Khan attributed all these economic ills to a dysfunctional and failed governance system. He vowed to reduce the cost of doing business and bring investment in the country after eliminating corruption. Outlining its economic policy, PTI in its manifesto has said that it would boost the tourism industry, develop the IT sector to build a knowledge economy, strengthen international trade, revitalize the textile sector and push exports. It would plans to unleash Pakistan's potential in agriculture, revamp the livestock sector, build dams, tackle Pakistan's water scarcity challenges and revive the fisheries industry.
Economic experts have warned that while initiating long overdue structural reforms, the newly elected government may have to approach International Monetary Fund (IMF) for a bailout package to stabilise the external sector. A senior leader of PTI has stated that the new government would decide to approach the IMF for fresh bailout package after thoroughly reviewing the economic situation and on the basis of briefings from the ministry of finance and Federal Board of Revenue. The PTI leadership is sincere and has honesty of purpose. Given time and resources it has the capacity to turn the economy around. To this end it should formulate a long term strategy to convert its economic vision into reality.