It seems that with elections just around the corner, the coalition government has managed to avert the threat of default, and with the inflow of $4.2 billion, Pakistan’s forex reserves have thus doubled. This clearly means that Pakistan is not likely to default any time soon. However, it should be remembered that the fresh $2 billion from Saudi Arabia and the $1 billion from UAE are deposits, and cannot really be used for paying for imports. However, that does not mean that the country is out of the hole it was in.
The news of the bolstering of reserves had led to a strengthening of the rupee, but it is likelier than not to decline once the euphoria dies down. For a start, one of the conditions imposed by the IMF was the opening up of imports. As the pent-up demand exaggerates the outflow of foreign exchange, the rupee will come under pressure. As it was, if the present coalition, or the expected caretaker government, or both, tries to bring the present loadshedding under control by importing furnace oil for thermal generation, the import bill will climb up.
The coalition has ridden the crisis, and the caretakers do not have one to face, while it will be up to the elected government to take the steps needed for an end to crises. If it doesn’t watch out, the elected government could find itself once again embroiled in a crisis as soon as the middle of next year. The IMF has set tough conditions for the current loan, but it has not insisted on several which it sees as essential for righting the country’s finances. Actually, the economy must either be able to export more, or attract sufficient foreign direct investment, to service its debt, and stop incurring more.That is only possible by long-term investments in human capital and in other areas where the state has stinted before. Such measures are not possible for the present government, or the caretakers, simply because there is not enough time. Indeed, even if the government thrown up as a result of the coming elections, was to focus on such measures, it would find that it had laid the groundwork only if it managed to complete its full five-year tenure. To help it, whatever its complexion, to stick to the task, it is essential that all parties, government or opposition, come together, and agree on what steps are needed, and further to agree to implement those steps if elected to power. In short, there must be a Charter of the Economy. If there isn’t, the next crisis is inevitable.
