There has been a lot of debate regarding the performance of country’s economy. On one hand critics points out serious flaws and increasing concerns whereas on the other hand the government will tell you that performance of Pakistan’s economy is at its best. Handpicked reports of foreign publications are cited as proof of Pakistan’s growing economic powers.
But according to a recent report every Pakistani owes over Rs115,000 as the country’s pile of total debt and liabilities increased to Rs23.14 trillion by the end of December 31, 2016, a year-on-year increase of 10%, according to provisional figures updated by the State Bank of Pakistan (SBP). Foreign reserves are on the decline (reserves have fallen by $1.9 billion since October 2016) and amidst shrinking exports, stagnant remittances (that are now starting to show signs of decline) and likely increase in oil prices in the coming months the pressure on Pakistan’s foreign reserves will grow further, debt servicing requirements will further add to the pressure on the country’s reserves. Pakistan’s balance of trade is also alarming, exports have not shown any increase over the past few years and in fact they have declined while the imports continue to grow. In order to curb this balance of payments difference, the State Bank of Pakistan has recently introduced regulatory measures to discourage imports of consumer goods. By and large, as the situation stands, experts foresee Pakistan’s debt requirements increasing further in the coming years. It is predicted that the government will opt for another IMF bailout plan around the upcoming 2018 general election.
The much touted foreign exchange reserves of the country rely heavily on remittances. Last week, the State Bank of Pakistan (SBP) issued a report that warns of the economic impact of declining remittances. Declining remittances will have direct effect on consumption, investment and the exchange rate.
Finance Minister Ishaq Dar recently penned an op-ed on Pakistan’s debt issue but was dismissive of the problem. The Minister wrote ’some inherently skeptical analysts have gone overboard with predictions of doomsday scenario for Pakistan’s debt and liabilities. Not surprisingly, their analyses are largely built on misinterpretations rather than facts. However amidst rising debt, shrinking exports and declining foreign reserves people have every right to be skeptical, we also have history of achieving short term stability at the cost of long term stability. Who doesn’t remember the mighty claims during the tenure of foreign President Pervez Musharraf that all is well on the economic front. Back then, it was also the foreign reserves that were cited as the government success on the economic front. However that ‘bubble’ was short lived and the coming years proved that short term measures did more harm and than good to the country’s economy.
For now the government continues to rubbish concerns regarding debt servicing requirements, foreign reserves and exports. But that will not solve the problem. Some experts have also expressed concern regarding the problems that CPEC-related loan repayments will cause in the coming years. The government needs to ensure that it doesn’t put the country’s long term economic good at risk for short term good, this might propel the party in the upcoming elections but the risks being incurred in this regard could prove costly.
A stable economy shouldn’t not be heavily dependent on remittances.
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