Exploitive Interest System & Foreign Loans Hijack Pakistan's Economy
Pakistan’s economy has been the victim of a vicious cycle of flawed policies pursued and implemented by the governments one after the other. The money laundering, endemic corruption, misgoverance, and political expediency have together factored to exacerbate economic woes from macro to micro level over the course of decades. Every government after coming into power religiously holds its predecessor responsible for the economic mess it inherits. However, ironically almost every succeeding government ends up pursuing a similar pattern of lopsided economic models of its predecessor. The balance of payment crises, widening import and export, currency devaluation, shortfall in tax revenue, stagnant remittances and excessive borrowings from international donor agencies, friendly countries and domestic banks have been standard bottlenecks hurdling to put the economy on the track of self-sufficiency.
Whenever there is change of guards in corridors of power in Islamabad, almost every government typically approaches Saudi Arabia, the UAE and China to seek more loans and investments to address the depleting foreign currency reserves. The IMF has been yet another outpost, every government sets its sight on to seek emergency funding to pay back previous foreign borrowings. And before the IMF approves bailout package, again every incoming government typically resorts to devalue currency, hike utility prices and slash subsidies to qualify to the external financing.
The old win is once again in new bottle. As this is also the story of the new government headed by Prime Minister Imran Khan notwithstanding the fact that he had repeatedly pledged to reverse decade long vicious cycle of controversial economic models. However, there is little of what his administration has done so far which may vary from the policies of his predecessors.
The balance of payment crises was understandably the biggest challenge for his administration after coming into power in August 2018. However, the solution Khan’s government has come up with, was hackneyed one with known backlash to a struggling economy.
To begin with, the new government resorted to devalue the rupee by 15.4 percent in an effort to prequalify to seek over $8 billion IMF bailout package, something Imran Khan had vowed in the past in an emotion outburst that he would never do and instead would rather prefer to commit suicide. The controversial decision was aimed at bringing down $37.6-billion trade deficit, which triggered the highest ever current account deficit of $18.9 billion in the last fiscal year. This was standard policy option which his predecessor governments frequently had exercised with no significant results to enhance exports and bring down the trade deficit. The rupee devaluation like in the past has skyrocketed utility bills and everyday use daily food commodities and medicines in a country where according to UNDP’s 2016 report four out of 10 Pakistanis or 39 percent of 207 million population live in a multi-dimensional poverty.
The external borrowings continues to pile up alarmingly. The government under Imran Khan has received $ 3 billion loan as a balance of payment support from Saudi Arabia against the interest rate of 3.18 percent. Riyadh has also pledged to another $3 billions in deferred payments on oil imports. Similarly thus far Islamabad has secured $1 billion loan out of $3 billion from the UAE against same percentage of interest rate. Islamabad is seeking supply of $3.2 billion oil from the UAE and $4 billion worth of liquefied natural gas (LNG) on deferred payments from Qatar. That is not all. Pakistan is also in negotiations with China to seek $2 billion borrowings against one percent interest rate.
Islamabad’s frenetic efforts to seek more and more loans and supply of gas and oil on deferred payments are designed at averting another looming balance of payment crises as Pakistan’s foreign currency reserves dropped to $ 8.6 billion by January 26. The current reserves are hardly enough for eight to nine weeks import bill.
Prime Minister Imran Khan so far added 04 billion in external borrowings and more loans are on the cards while he had inherited $95 billion foreign loans. His predecessor, the former jailed Prime Minister Nawaz Sharif’s government had added whopping $35 billion which was the highest ever in last 60 years. The heavily external borrowings is no longer sustainable in the long run. The Moody – the US based credit rating agency has forecast that Pakistan’s repayment to the accumulated foreign debt would reach to 160 percent of its foreign currency reserves in 2019.
Another worry is the surge of 17.9 trillion or $128 billion borrowings taken from the domestic banks over the years by the successive governments. Because of shortfall in the tax revenue, Khan’s government too, has added 2.24 trillion rupees ($16.11 billions) in the internal debt within just last five months. Every year on an average, the government in Islamabad has been spending well over 40 percent of its total budget alone on paying interest to domestic banks.
With over two decades of journalistic experience including a long stint with Al-Jazeera, Javed Rana is witness to countless monumental developments taking place in Pakistan and Afghanistan. Javed focuses on non-state armed actors, legal, political, economic & geostrategic issues. Tweet to @javedjournalist