You mean previous governments (PPP AND PML-N) destroyed the economy BORROWED TO STEAL for over 40 plus years and left the country on the brink of bankruptcy is somehow IK fault? and he should have been able to fix all that with a magical wand over night, is that what you are saying?
No. We have heard enough about PTI inherited an economy on the edge and they also knew what they are inheriting and took responsibility to fix it. We are not expecting magic output but planning and direction in early days. We are talking about home work of PTI to tackle economic crisis since they nominated expert asad umer as shadow finance minister . We are talking about any new direction, ideas and economic policy of non corrupt holy PTI government and what measures they would be talking to solve this economic crisis or to bring any major reforms so that next government would not need to rush toward IMF or to knock the doors of others countries with " begging bowl" or to not put all blame on PTI the way PTI is putting blam on others . Would PTI be going on same pattern as previous government or break this cycle ? Corruption is issue but there are many others serious issues because of which economy is suffering
Successive governments have relied on foreign money to help them ride out periodic crises, while leaving fundamental issues unaddressed. The IMF has run 21 programmes in Pakistan since 1958, 14 of them since 1980.
The immediate reasons for the gravity of the present situation lie in a misconceived energy policy and the financial structure of the power projects undertaken as part of the China-Pakistan Economic Corridor (CPEC). These were approved in haste without being integrated into a wider energy and macroeconomic policy framework. This was a result of former prime minister Nawaz Sharif’s eagerness to deliver on his 2013 election promise to end power shortages.
Fast forward to 2018, and Pakistan’s current account deficit has risen by 40 per cent over the past year, mainly due to an increase of $7.2bn in imports, while exports rose by just $2.8bn. About 70 per cent of the rise in the import bill was accounted for by energy products, capital equipment and related raw material. Pakistan imported 11.2m tonnes of coal in 2017, compared with 3.42m tonnes in 2013.
Unfortunately, any criticism of the CPEC has been considered almost blasphemous in Pakistan’s state-controlled media. Yet it is important to understand that the power projects are not “investments” in the usual sense of the term. Pakistan approved 21 power projects at an expected total cost of $35bn and most of them to be coal-fired. Not all of this “investment” is in the form of equity. The debt to equity ratio for many of the projects is 75 per cent debt and 25 per cent equity, with the return on invested equity reported to be as high as 34.5 per cent
When profit is guaranteed by the government, it is misleading to talk about “private investment”. This is the case with all the CPEC power projects, since the government is obliged to pay an agreed return regardless of whether the projects actually make money. Pakistan’s official external debt of $95bn (30 per cent of GDP) does not include this quasi-government debt.
The strategy of building infrastructure through projects that carry government-guaranteed profits, and which are financed largely through foreign currency debt, has now fallen apart.
In this context, it is worth noting that Malaysia’s prime minister Mahathir Mohamad has recently suspended $23bn in Chinese-backed projects and is seeking to renegotiate the terms of others.
The most harmful consequence of Pakistan’s approach has been to encourage rent-seeking. Business groups that already benefit from favourable tax exemptions or subsidies have jumped on the CPEC bandwagon as a way of making easy money.
According to the Pakistan Economic Survey for 2017-18, tax exemptions to businesses amounted to $4.4bn in just one year.
A level playing field in a competitive economy should be free from such distortions. Otherwise there is no incentive to work hard and invest in industries when a fast buck can be made through land allotments and manipulation of subsidies and the tax regime.
For too long, Pakistan has followed policies that have discouraged large-scale industrialisation. These have contributed to the country’s failure to see the high growth rates achieved by many other countries in Asia, especially since the 1990s.
The removal of suffocating and cumbersome government regulations and reducing the discretionary powers of the state should be among Pakistan’s top priorities.
Mr Khan ought to focus on reforming a political economy built on patronage, rent-seeking and foreign bailouts under the protection of a military and civil bureaucracy that has proved to be incapable of addressing the complex challenges Pakistan faces.
After all, there is no guarantee that the IMF will continue to offer bailouts on generous terms. Pakistan must learn to wean itself off such bounty.
https://www.ft.com/content/12b8f7bc-a555-11e8-a1b6-f368d365bf0e
Pakistan’s formula for economic growth is as flawed as it gets: borrow foreign currency-denominated loans, build some large-scale infrastructure, get a minor growth spurt in the process, and wait until this growth spurt fades so we can repeat the process again.
This is what the previous government did. And, the one before that. It could have worked if, while borrowing to build infrastructure, it did not ignore the underlying constraints to growth and productivity.
Because they did not do that, Pakistan has ended up with an increasing level of debt, a balance of payment crises, and a government struggling to keep the growth spurt going.
When these challenges become dire — Pakistan often ends up getting a loan by the International Monetary Fund (IMF).
This time, if we’re successful in persuading them which looks to be the case, will be the
22nd occasion we will be loaned capital by the fund since 1958.
And, if our public discourse and policies remain the same, we will without doubt keep knocking at IMF’s door every few years (or some other lender for that matter).
The logical argument made by analysts in Pakistan here is that the government needs to bring meaningful reforms to our economy.
So, in due course, we are in a fiscally sound enough condition that we not require bailouts like the ones we get from the IMF.
This is a perfectly accurate demand. But, it often masks the
political causes to our economic despair.
The problem with talking about the economy divorced from politics is that we end up with superficial reforms.
This is because any meaningful reforms are impossible if the political structure does not allow them.
For this to change, our public discourse needs to take a holistic overview of our institutions. This is a contribution to that end.
For more
https://www.dawn.com/news/1439408
