Time to set things right

Editorial Board
Thursday, Nov 24, 2022

The spectacle surrounding the appointment of the next army chief is expending too much positive energy for the good of Pakistan’s economy. It has compounded the already substantial political risk stirred up by former prime minister Imran Khan since his ouster from power this April. Reports of a divergence of views between Finance Minister Senator Ishaq Dar and the IMF over how to approach the ninth review of a hefty funding facility has further hurt the prospects of the country’s beleaguered economy. Coming against this backdrop, the news last week that Pakistan’s five-year credit default swap (CDS) has increased to a mind-boggling 92.53 per cent was only the icing on the cake. This is nothing but a symptom of the battered state of our economy, which after all is no secret. Also common knowledge is the fact that Pakistan’s economy is teetering on the verge of default.

On the other hand, reports like these should spur the authorities into urgent action to set things right because the arbiters of global finance factor reports like these into their investment calculus. Dar and his team know Pakistan’s future lies in FDI not DFi. They know that ultimately, it is the free-wheeling global capital that makes and breaks national economies these days. In fact, wooing this capital was one of the most salient reasons why Pakistan spent considerable time and energy in its engagements with the IMF and its Financial Action Task Force (FATF) in recent times. And that was as it should be.

If we take a look at the big picture, Pakistan stands eleventh among the emerging markets in terms of default risk. Some may argue that this means the situation is not as desperate as some reports suggest, there is no denying that there is no room for complacency. Pakistan’s economic managers must realise that it was a default on foreign currency sovereign debt and not multilateral or bilateral debt that led to political upheaval in Sri Lanka a while back. What's more, the challenges facing our economy are real and substantial. We have to fork out $1 billion to investors for a Eurobond issue in just over a week. Our foreign exchange reserves are barely adequate to finance six weeks of imports as of now. This outflow, due on December 5, will stretch out forex holdings thin barring another major liquidity injection via bilateral debt or development finance, none of which is on the horizon.

Looking at the immediate context, import compression in recent months has hurt the government’s already inadequate revenue, and sagging exports and remittances are eating into the country’s hard currency reserves as well as widening the current account deficit. These are all ill omens, especially at a time when a looming global recession is threatening to squeeze the world, sending shockwaves across all national economies. The destruction wrought by this monsoon’s cataclysmic flooding has taken a terrible toll on the economy, necessitating food and commodity imports and strapping industries with higher input costs. Then there is the colossal task of reconstruction in the wake of this disaster, the likes of which our country has never seen before. But probably the most urgent of all challenges to the economy is the political risk hovering over our horizons. One hopes the government can quickly push through the long-drawn-out November appointment matter, and steer the nation towards political stability.