Many Pakistani cities faced power outage around 7:30 am (0230 GMT) on Monday, a failure linked to a cost-cutting measure as the country grapples with an economic crisis. (Image: AFP)
The problem is not that Pakistan economy is heading for a meltdown; the problem is that no one has a clear, coherent, cogent roadmap to pull the country back from the abyss. Imran Khan thinks elections will solve Pakistan's problems. If he wins, his good looks will lead to billions of dollars pouring into Pakistan.
The ruling combine is equally vacuous. Its gameplan is to try and get friendly countries (Saudis, UAE, Qatar, China) and the gullible West to pump in money that will help them tide over the immediate crisis. The most powerful political party – Pakistan Army – hasn’t got the foggiest idea of economics.
Still in Fool’s Paradise
If you don’t believe this, try listening to the prescriptions of retired generals on Pakistan’s idiot box and on social media. But if things spiral out of control, the military might be forced to carry the can, to which it has contributed significantly.
Unfortunately for Pakistan, the gravy train has stopped. No one is ready to give money to Pakistan without an International Monetary Fund (IMF) backing. In other words, if the money comes, it will with very stringent conditions for which Pakistanis, used as they are to free money, have no appetite.
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The Pakistanis however still believe that they will be bailed out even if it is at the last minute. The thinking in Pakistan is that no one will let a nuclear weapons armed country of 240 million people with a radicalised mindset go under.
A Country Let Down By Its Elites
The economic apocalypse that is staring Pakistan in the face has been many years in the making. But the Pakistani elite have never thought beyond applying band-aid solutions to deep systemic and structural problems in the economy. A stage has been reached where it now seems only a matter of time before the economy goes belly up.
The problem is compounded by complete political disarray which is fuelling instability and uncertainty. Add to this a new wave of terrorism coming from the Taliban, who shattered their shackles of slavery with Pakistan's help. And all this happening in an election year.
If the IMF programme gets back on track, it will unlock funds from other donors. But the money will stave off bankruptcy only for a few months, and then it will be back to square one. It won’t provide the cushion for deep structural reforms, assuming anyone in Pakistan is even interested in them. Without the IMF, however, Pakistan is going to default in a couple of weeks and become a Sri Lanka on steroids.
IMF: Life Support And Bitter Pill
The problem is that the IMF conditions are a political death sentence. The artificially propped up Pakistani rupee will collapse – no one knows how much because it could be 260 or 270 or if the Cassandras are to be believed, even cross 300 to a dollar.
Fuel, gas and power rates will go up, new taxes will be levied, and inflation will hit the roof – it is expected to be 35 percent and food inflation even higher. With inflation spiking, interest rates will go up – the policy rate is already 17 percent. As interest rates rise, the fiscal situation will unravel. Debt servicing already consumes nearly 80-90 percent of the federal government revenue.
Pakistan is broke. It just cannot be fixed without massive surgery – economists call it structural reforms. But these are far more difficult than allowing the rupee to float or raising prices of power and fuel.
Pakistan’s Choices: Major Surgery or Collapse
They require ending the elite capture, downsizing the bloated Army and rest of the state, cutting open and hidden subsidies to industry, which will lead to large scale closure of businesses (including public sector white elephants).
In short, the economy needs to contract to become viable and sustainable. But this process will cause a storm of unemployment in a country which, in the last two to three decades has recorded an annual population growth of 3 percent and average GDP growth of around the same, though the public debt is doubling every five years.
Pakistan has to dismantle everything and start from scratch. Otherwise, only Afghanistan can help Pakistan now – another outrageous terror attack that makes Pakistan relevant once again. Without that, former dictator Pervez Musharraf’s parting shot comes to mind: Pakistan ka ab Allah hi hafiz (only Allah can save Pakistan now).
Sushant Sareen is Senior Fellow, Observer Research Foundation. Views are personal and do not represent the stand of this publication.