The year 2022 was a year of economic turmoil for Pakistan. As it had dawned with economic deficit, it ended with further economic woes for the homeland. And the path ahead is also very thorny as the New Year has begun with a huge and unprecedented revenue shortfall in December which has set the alarms bells ringing. Reports say that our revenue collection target has failed as the Federal Board of Revenue (FBR) has missed on achieving the goal of collection target for the last month of the last year by around Rs225 billion. There has been a sort of reversal trend in revenue collection as we witness a mammoth shortfall of its kind. This sharp decline in imports is said to be the main factor behind this failure due to which the initial revenue collection is at Rs740bn against the projected target of Rs965bn in December last.

Financial experts say that the restrictions on Letters of Credit (LCs) have affected the imports in a big way.  The major revenue sources like automobiles-CBU and CKD and other machinery witnessed a drop in imports as a result of the import containment policy of the government, and hence we are faced with revenue shortfall. On the other hand, our foreign exchange reserves are fast depleting. In a nutshell, our economy is in the dock and currently there seems no light at the end of tunnel. It is very unfortunate that Pakistan’s foreign exchange reserves held by the State Bank of Pakistan (SBP) have dwindled by massive $784 million to an almost four-year low of $6.72 billion during last week. It points to the grim economic situation in the country. Yes, as per reports by the central bank, foreign reserves were last witnessed below this level during third week of January in 2019, i.e., $6.64bn. The market is in a depression and prices are escalating every day.

Meanwhile, it is also unfortunate that there is a big gap between the help pledged by various countries for Pakistan and the actual help and assistance delivered so far for overcoming the flood devastations, so this factor should also be kept in mind.  In fact, the fiscal deficit is a matter of serious concern. On the one hand, the demand for dollar is high while on the other Govt is making efforts to stabilize value of rupee. One would agree with the Finance Minister, Ishaq Dar, who had painted a broad-based dismal macroeconomic outlook for the year 2022, but what he missed about the hitting the bull’s eye was that the economic melt-down which is prevailing right now is the one to be controlled in short time.  In fact, it will take years and a well devised long-term policy only then can we hope for some betterment. Thousands of houses, livestock, animals, and standing crops have been washed away by the flash floods. Infrastructure has been badly damaged in the form of bridges, railway tracks, roads and small dams as well. According to the National Disaster Management Authority, an estimated 1.7 million homes have been washed away by floods, while over 6,600kms long roads, highways and 269 bridges, small dams and lakes infrastructures has been destroyed.  Right now, the forecast for the inflation is hovering around 21 per cent which is unpresented in nature which point to tough economic conditions for the common man, who is already running from pillar to post to make both ends meet. Though our economy was already in the dock for the last few years, but the abnormal floods have caused such a dent that it will take years to recover. According to the Monthly Economic Update & Outlook, the Consumer Price Index (CPI) inflation is going to be in the range of 21-22.5pc. And, the stiff economic policies by the central bank are also causing rise in inflation as it is affecting the growth rate in real sense of the word. A recent report has forewarned about the further slowing down of the economy due the floods which have wreaked havoc with the lives and infrastructures in all the provinces. A thorny path lies ahead as a lot needs to be done for the rescue and rehabilitation of flood affected section of the society and for the repair and rebuilding of the damaged roads, houses, rainlinks, hospitals etc. To be very specific, our economic woes are daunting and unprecedented in nature.

The ground realities are very complexed and one is not sure how Mr Dar will come to terms with the gigantic requirements of the situation. Our economy is going nose-dive and the rupee is going to further depreciate unless drastic help arrives from abroad. Though Mr Dar is a seasoned financial expert and during his previous tenures as Finance Minister, his strategy to contains rupees free-fall against Dollar has also borne fruit, but this time the situation is very different. That’s why noting can said with surety or taken for granted.  During his previous tenure, Mr Dar with the help of  SBP, had  made dollars easily available in the market by supplying a large amount of dollars in the open market so that the rupee’s devaluation can be prevented. He had also succeeded in his efforts to some extent. But right now, we have not many dollars to pump them out in the market.  The rupees gain one day, but the very next day, its free-fall starts again. Initially the Pak rupee gained some strength after the IMF agreement but after few days, it was again on the losing streak and the local currency fell substantially in the post-IMF bailout. On the other hand, the friendly countries  had pledged to help us financially after the IMF tranche arrives in our deposits but they did not kept their promises as yet and it remains to be seen how the country comes to term with the situation arising out of the commitment not fulfilled by the friendly states.

The ongoing political instability in the country and our whopping foreign loans burden which are going beyond our capacity to pay back have driven the friendly countries on back foot and they seem to be hesitant to provide finances any more as they fear that our country is not in a position to pay back the same.

The current IMF aid stands at $1.16bn but financial experts term it inadequate to turn around the destiny of the rupee which has suffered a lot during the last few years. And it seems that though the rupee is recovering for the time being against US dollar, but soon it   will enter the pressure  zone in times to come unless a miracle happens. And last but not the least, the financial gurus say that we have only delayed the default by getting the IMF bailout but it does not mean that we are out of the financial woes.

In fact, after some time, the issue will be there and we will be facing a default-like situation in future as well.

Published in The Daily National Courier, January, 02 2023

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