Pakistan began the year 2022 with talk of default, slogged through the middle of the year averting default by a hair’s breadth, and the third quarter averting default with IMF assistance, only to end the year with new talk of default. One notable difference from last December is that the IMF’s Extended Fund Facility (EFF) was on hold at the time but is now back on track. Is that correct? Markets are uncertain, regardless of what Finance Minister Ishaq Dar says. There are, of course, other changes between then and now. The currency has fallen from Rs 176 to Rs 226 to the dollar since December 31, 2021, while the per-litre pump price of petrol has risen from Rs 141 to Rs 214 and diesel from Rs 131 to Rs 227. Nonetheless, Finance Minister Dar argues that the situation is difficult but not dire.
The finance minister emphasises the rupee’s depreciation, but his tough stance is driving remittances and private assets into the grey market.
The entire trend of current financial policies appears to be more focused on pandering to the ballot box than stabilising. Is it this apparent lack of spine in the face of difficult political decisions that has fueled speculation of a technocratic setup? Pakistan has witnessed enough technocratic shenanigans to know that no extra-parliamentary regime can exorcise the demons that stalk the country’s economy.
But, at the same time, no parliamentary dispensation susceptible to the whims of the public and lacking the political resolve to make the right judgement at the right time can pull it off. Prime Minister Shehbaz Sharif must recognise that his administration requires strong political stewardship right now, not popular political scoring. Consider how the administration mocks the previous Prime Minister Imran Khan for his disastrous freeze on petroleum prices while continuing the same policy for several months to demonstrate its own pro-people credentials. The sooner our politicians grow out of this behavior, the better for our country.
Back to indicators: stocks are losing value while gold is gaining, indicating how cautious investors are hedging their bets. Since December 2021, the KSE-100 Index has fallen from 44,596 to 39,802 points, while gold has risen from Rs 108,196 to Rs 156,636 per 10 gm, or from Rs 126,200 to Rs 182,700 a tola. Dar has been quite hesitant to share the road map he has devised to get the economy out of the woods.
All he maintains is that inflows will arrive in time to cover outflows, despite the fact that the central bank’s currency holdings have been stretched to the breaking point.
But now that Dar is in charge of the economy, he must innovate and make the best of a bad situation. He must be aware that inflation has nearly doubled from roughly 12% last December to nearly 24% now and that it is likely to get entrenched to the point where it will take until next December to unwind.
Dar, on the other hand, has successfully questioned conventional thinking in the past. If he can quickly devise an out-of-the-box solution to Pakistan’s external finance dilemma, the economy that was on course to develop the world’s 18th largest GDP by 2023 may at least rise to its feet that year, shedding the shackles of IMF programmes.
