Spearhead Analysis – 19.12.2016
The question uppermost in everyone’s mind is — will Pakistan be able to handle the burden of debt that it has accumulated in the period 2013 to 2016? This burden in 2016 stands at Rupees 12.5 trillion and the external debt incurred in foreign exchange is USD 73 billion. In 2013 these debts were Rupees 9.5 trillion and USD 61 billion respectively. So there has been a substantial increase. This means the total debt to GDP ratio is 67.4% while the permissible ratio is 60% — again a substantial move over the limit. What investments has this debt financed and will these investments deliver returns that are higher than the cost at which this debt has been incurred? Will the GDP grow faster than the rate at which debt has to be serviced? These are the questions that will have to be answered to determine the shape of the economy in 2017.
There are several feel good factors at work to influence opinion. The IMF program has been successfully completed and both the IMF and the World Bank have said good things about the country. The stock exchange is recording eye popping figures and is expected to perform even better. The exchange rate is stable and foreign exchange reserves have been built up to reasonably good levels. The China Pakistan Economic Corridor project is getting star billing as the greatest game changer ever. The power sector has improved and the various projects undertaken are delivering. The internal security situation is much better and should continue improving. All this implies that the prognosis for exports, for foreign direct investment and for competitiveness should be good.
There is, however, an uncertainty and fragility in the situation that should not be ignored. During the previous failed IMF program Pakistan’s economy could not withstand the shock of a surge in world oil prices and a deteriorating internal security environment. This time the sharp drop in oil prices and a steady increase in foreign remittances have helped considerably. Any reversal or even a negative trend could lead to considerable difficulties. The real estate sector that was a major revenue earner is virtually at a standstill and this is probably fuelling the surge in the stock exchange. The tax net has not widened and exports are declining as is the agriculture sector. The conclusion one reaches is that key structural reforms have not been undertaken nor are there any indications that these will be undertaken any time soon. The public sector enterprises are performing abysmally and the private sector has not been drawn in to rescue them. The fact that PIA management allowed a black goat to be sacrificed to stave off disaster speaks volumes about professional management expertise. The overall security situation is dogged by two significant considerations — the improved internal security situation is being maintained by the Rangers in Karachi and Operation Zarb e Azb in the west. So far no consolidation or enhancement of law enforcement or counter terror forces has taken place to indicate long term sustainability beyond the current arrangements. There is very little doubt that multiple militant and terror groups exist in sanctuaries across the western border and even astride it and that these pose a serious threat. India is playing hardball on Kashmir, on the LOC and with naked threats of targeting the CPEC in Gilgit-Baltistan and Baluchistan with no wish to engage in a dialogue.
Pakistan’s security, economy, foreign policy and governance managers have their work cut out for them. The Supreme Court report on the August terror attack in Quetta has clearly identified the fault lines in the National Action Plan that have yet to be addressed. Extremism is rearing its head and so far remains largely unchecked. To maintain and increase traction the economy requires that steps be taken to end the uncertainty that surrounds the debt issue, indicate governance improvement measures like institutionalized decision making and expert management, implement the National Action Plan and address the issues that could stalemate and even logjam the economy. Pakistan needs to enter 2017 with optimism and hope — and this can be possible only if the will is there.
(Spearhead Analyses are collaborative efforts and not attributable to a single individual)