Whether one is an avowed critic of the economic policies of government or an anodyne appraiser of their impact, it is hard to take an issue with the recent claims made by Finance Minister Ishaq Dar in regard to the state of the inherited economy and the success that has been achieved in addressing the maladies afflicting it. He has indeed given verifiable facts about the turnaround in various sectors of the economy, which have repeatedly been endorsed by some international lending and evaluating agencies as well as acknowledged by prestigious international publications.
Three years down the line the profile of the economy is quite encouraging. The fact that the budget deficit, which is considered as mother of all economic woes, has been brought down from 8.2 percent of GDP in 2013 to 5.3 percent in 2014-15 and is likely to be further pulled down to 4.3 percent by June 2016, speaks volumes about the efficacy of the macro-economic and structural reforms introduced by government during the last three years. Expansion in the tax-net, bringing down inflation to a single digit, increase in credit to private and agriculture sector, gradual enhancement in development funding, increased foreign remittances and the foreign exchange reserves touching the phenomenal level of 20 billion dollars are all credible indicators of the health of the economy. These factors coupled with the fiscal discipline not only helped in bringing down the budget deficit but also contributed to reducing the debt to GDP ratio from 64 percent of GDP in 2012-13 to 63 percent at the end of 2014-15, besides managing the debt issue amicably.
The rationale and the need for borrowing from internal and external sources including the IMF as well as raising money from the international financial markets, through issuance of Euro bonds explained by Dar is also quite convincing. The country, undoubtedly, was on the verge of default in regard to loans taken from the IMF by the previous government, and the PML-N government had no choice but to immediately seek Extended Fund Facility of 6.6 billion dollars to avoid the emerging disaster, which it was able to negotiate successfully. It also needed money for its developmental needs and other unavoidable expenditures. With persistent budget deficit, government perforce had to resort to internal and external borrowing. However, the borrowing has been well managed as compared to the loans taken by the previous government, which have tremendously increased the debt liabilities of the present government, such as debt servicing.
The response that the Euro bonds received in many ways was a confirmation of the health of the economy and its ability to absorb foreign investments. For the five-year bonds investors came from all geographical regions; nearly 59 percent were subscribed in the U.S., 19 percent in the UK, 10 percent in other European countries, 10 percent in Asia, seven percent by hedge fund and one percent by insurance companies and pension funds. In respect of 10-year bonds, most of the money came from the U.S. This outcome was a result of the strenuous and consistent efforts of the economic managers of Pakistan to showcase a marked improvement in economic indicators and the success of the economic reforms introduced by government at all international economic forums.
Nevertheless some naysayers have been incessantly criticising the floating of Euro bonds preferring the argument that the interest rates agreed were rather on the higher side and might in the end have debilitating impact on the economy in terms of cost of the loans that will have to be paid. These loans obtained at 7.5 percent and 8.5 percent though seem on the higher side but their impact is more or less offset by the overall percentage of 3.3 percent on all loans obtained by the government. Similarly, some circles are trying to do their utmost to rub in the notion that the CPEC would increase Pakistan’s external debt substantially. I think those holding this view have not bothered to see the details of the MOUs and agreements signed between Pakistan and China. Out of 46 billion dollars nearly 34 billion dollars pertain to energy projects, which will mostly be in the private sector. These investments will not be responsible for adding to our debt burden. Furthermore, they are not taking into account the economic activity that the CPEC would generate and its productive potentials, which could grow to astronomical proportions due to the multiplier effect. This mega project is a lifetime opportunity for Pakistan and the entire region not only to address economic difficulties but also to put their economies on an irreversible path of sustained development.
An ideal and preferable situation for the managers of economy would be non-reliance on borrowed money. However, for developing economies like Pakistan, beset with a host of economic aberrations, it is nothing but a dream. Managing an economy is indeed an arduous and convoluted undertaking due to its linkages with myriad internal and external factors, which are sometimes beyond the control of government. Borrowing from internal and external resources is an indispensable imperative for economies like Pakistan. But what is important is that the money borrowed should be gainfully invested so that repayments could be made from the resources that are generated by those investments and the residual money can also be diverted to productive channels. Borrowing for the sake of repaying debts can put the economy under further strain. The economy of Pakistan is well on its way to a sustained development and in view of the future projections it can be safely inferred that Pakistan will be in a comfortable position in the future to pay back these loans as well as to reduce its dependence on borrowed money.
The performance of a government in regard to its achievements or otherwise is needed to be judged with reference to the gravity of the challenges that it inherited to put things in proper perspective. Any out-of-context evaluation is bound to create a distorted view of the situation. Unfortunately, the sitting governments have the disadvantage of incumbency; it is a universal phenomenon. However, it is more pronounced in our land of the pure where people love to have a swipe at government policies and because negativity sells.
The writer is a retired diplomat, a freelance columnist and a member of the visiting faculty of the Riphah Institute of Media Sciences, Riphah International University, Islamabad. He can be reached at firstname.lastname@example.org