By Anjan Roy
About a week back, Pakistan’s Finance minister was urging its citizens to consume less tea as the country was scraping the bottom of the barrel to organise even essential imports. Foreign exchange reserves had sunk to cover just a few days imports. Every leaf of tea consumed in the country has to be imported.
The importance of cutting back on tea consumption is no easy advice in Pakistan. It is one of the largest tea consuming countries in the world and its kind of tea with milk and lots of sugar is ubiquitous in Pakistan. But now with little foreign exchange availability, there would be no options, unless, IMF comes to aid.
The country is in basically no different situation than Sri Lanka as highly indebted and staring at total collapse.
Years of neglect of economic fundamentals and mismanagement has left the country with a sinking economy, sliding value of the Pakistani rupee against the US dollar, spiking prices and sheer shortages of everything you need every day.
So far, Pakistan could somewhat meet its basic requirements due to the largesse provided by Saudi Arabia. After a large loan which has already been spent, further accommodation from Saudi Arabia also looked unlikely.
Pakistan’s so-called all-weather friend China had refused to bankroll given that plenty of Chinese money had already been sunk on the ground. If anything, Pakistan has to service its massive loan servicing obligations to China which are overdue. China is not forthcoming with ready help to its friend either.
Now it appears some help is at hand. The country has started negotiating with the International Monetary Fund (IMF) for urgent release of at least $1 billion of its stalled $6 billion loan trance under a bail out package. The IMF has set stiff conditionality before any funds are released however.
Most significantly, the first pre-condition of an IMF funds release is that the country should establish a high-level committee to look into large scale corruption in the country leading to sucking away of public money into private individual’s pockets.
The IMF’s recommended task force should look into laws and procedures of the government that leave opportunities for bureaucrats and functionaries to demand grant for clearance of projects or proposals.
Pakistan’s recently-ousted prime minister, Imran Khan, had repeatedly stated that it was the rampant corruption of the traditional political parties, which had ruined the country during its periods of lucid democratic intervals, that had landed Pakistan into an economic mess.
Incidentally, the brother of present Pakistan prime minister, Nawaz Sharief, has been accused of personal corruption and had been barred from contesting any elected post in the country.
After Imran Khan’s ouster following a confidence vote, the new prime minster, Shahbaz Sharief, had initiated the fresh negotiations with the IMF to arrange for funds to meet some urgent imports and stabilise the economy.
The other conditions include a stiff hike in the retail price of petroleum by levying at least Rs50 per litre of taxes on petroleum products, additional tax mobilisation efforts of Pakistani by Rs.43,600 crore and upward revision of electricity charges.
A declining economy and fast loss of credibility has resulted in Pakistan not being able to raise any funds from international markets. Additionally, Pakistan owes massive debts to China on account of a humongous Chinese investments for building infrastructure facilities far beyond the country could economically utilise.
Among these projects is the Gawadar port on the Arabian Sea coast which the Chinese look forward to using as a military base for extending its reach into the wider oceans. These presently yield little value on commercial terms.
With these costly facilities being under-utilised the financial costs alone could pull down Pakistan’s debt sustainability.
None of these could be popular in a country reeling under double digit inflation and economic disruptions. (IPA Service)