PAKISTAN ECONOMY & IMF
Political capitalism
DAWN
Published May 13, 2024
THE last couple of years have witnessed a series of changes to decision-making structures of Pakistan’s economy. These include the creation of the SIFC, the centralisation of economic governance, and greater economic proximity to the Gulf monarchies, particularly Saudi Arabia. The latter is notable because it appears to have shifted (in rhetoric at least) the bilateral relationship from one of aid and security towards economic investments.
These changes were precipitated by a basic symptom afflicting Pakistan’s economy — an inability to earn sufficient foreign exchange to sustain growth, which in turn leads to recurring balance-of-payment crises and enforced slowdowns. It is important to call this a symptom because the actual problem is one of capital and labour productivity, which prevents the economy from producing what it needs to efficiently produce for either the domestic or the international market. However, no one seems to be very interested in solving that particular issue.
In their quest for foreign exchange, civil-military decision-makers are keen on opening up several sectors and industries to foreign investment. However, the chosen mechanism is not through market-based competition, but through state-to-state deals midwifed by the SIFC. The terms at which these deals are being negotiated are unclear at the moment, but, if the country’s bargaining position and its past record is anything to go by, they will likely be lucrative.
Alongside the Saudi deals, increased attention is also being devoted to privatisation processes. Here as well, the government is closely involved in setting up deal structures and providing incentives to various interested parties. Another lesson from the past is that while these government-sponsored deals will help resolve short-term forex liquidity constraints, they may pose payment problems in the future and are unlikely to lift the economy out of its productivity slump.
The current hybrid regime is incapable of undercutting an entrenched, unproductive elite.
Government involvement of such form is not the state-directed development seen in the mid-20th century, when socialist states took on the task of production or when developmental states coordinated private sector activity. Rather, these vaguely correspond to a new type that’s emerged over the last few decades, which Branko Milanovic labels “political capitalism”.
Milanovic, echoing Max Weber, defines political capitalism as “the use of political power to achieve economic gains”. Magnified at the level of the state, political capitalism means that the state will use its ability to exercise discretion, such as in offering sweeteners and incentives, bypassing existing regulations, and creating new regulations and structures, to fulfil certain economic objectives. Private entities will still control the economy (through ownership of the means of production), but the state will use its power to intervene on behalf of favoured interests that help it achieve its desired objectives. In other words, the use of discretion is central to this model.
The exemplar practitioner of political capitalism in today’s world is China. The Chinese economy now largely exists in private hands, but the Chinese state continues to intervene in a discretionary manner, favouring some entities over others to achieve economic or social objectives. In that sense, there is an absence of a uniform ‘rule of law’ in China, in so far that regulations may be applied selectively or not at all depending on the objectives set by the Chinese state.
According to Milanovic, if regulations are applied uniformly (ie, rule of law is practised), then over time the state loses its relative power over the private sector. This is the case we see in most liberal capitalist states across the world. However, if the state becomes too discretionary (and corrupt), it will stifle economic productivity and lead to economic stagnation. The Chinese state is remarkable in that it has struck a balance in using selective discretion to generate high rates of economic growth, though with accompanying inequality. Other countries that have managed this model well include Vietnam and Singapore, both of which have used state involvement to create prosperity. Increasingly, Cambodia, Bangladesh and Rwanda are following a similar trajectory.
There are two key reasons why political capitalism of this sort is less likely to be successful in the Pakistani context. A key ingredient in all successful cases listed is the presence of a technocratic, highly skilled, and motivated bureaucracy. Pakistan’s federal and provincial bureaucracies fail on all three counts: staffed with generalists in commanding positions, with low levels of average competence, and an incentive structure that prioritises self-reward over some larger public service motivation.
Secondly, all successful examples of political capitalism have been highly centralised, one-party states usually created in the aftermath of some major political upheaval, like a socialist revolution that wipes out an entrenched elite and creates an autonomous state, or a major ethnic secession that creates a strong attachment of the population with the state. Pakistani decision-makers salivate at the prospect of a one-party state but without paying attention to those additional ingredients.
Neither is the current hybrid regime capable of undercutting an entrenched, unproductive elite (since the civilian part is drawn from the same elite), nor has it managed to incorporate large swathes of the population through shared national or ideational attachment. If anything, it has managed to do the exact opposite of the latter by marginalising the most popular party and repressing its members and supporters.
These structural weaknesses of low, self-serving competence and weak autonomy and legitimacy are precisely why previous attempts at state-directed interventions in the economy created rent-seeking opportunities for local and foreign investors, rather than helped the economy out of its multi-decade slump. While the actual challenge lies in generating productive human capability through health and education, chasing temporary dollars continues to command most of the state’s attention.
The writer teaches sociology at Lums.
X: @umairjav
Published in Dawn, May 13th, 2024
These changes were precipitated by a basic symptom afflicting Pakistan’s economy — an inability to earn sufficient foreign exchange to sustain growth, which in turn leads to recurring balance-of-payment crises and enforced slowdowns. It is important to call this a symptom because the actual problem is one of capital and labour productivity, which prevents the economy from producing what it needs to efficiently produce for either the domestic or the international market. However, no one seems to be very interested in solving that particular issue.
In their quest for foreign exchange, civil-military decision-makers are keen on opening up several sectors and industries to foreign investment. However, the chosen mechanism is not through market-based competition, but through state-to-state deals midwifed by the SIFC. The terms at which these deals are being negotiated are unclear at the moment, but, if the country’s bargaining position and its past record is anything to go by, they will likely be lucrative.
Alongside the Saudi deals, increased attention is also being devoted to privatisation processes. Here as well, the government is closely involved in setting up deal structures and providing incentives to various interested parties. Another lesson from the past is that while these government-sponsored deals will help resolve short-term forex liquidity constraints, they may pose payment problems in the future and are unlikely to lift the economy out of its productivity slump.
The current hybrid regime is incapable of undercutting an entrenched, unproductive elite.
Government involvement of such form is not the state-directed development seen in the mid-20th century, when socialist states took on the task of production or when developmental states coordinated private sector activity. Rather, these vaguely correspond to a new type that’s emerged over the last few decades, which Branko Milanovic labels “political capitalism”.
Milanovic, echoing Max Weber, defines political capitalism as “the use of political power to achieve economic gains”. Magnified at the level of the state, political capitalism means that the state will use its ability to exercise discretion, such as in offering sweeteners and incentives, bypassing existing regulations, and creating new regulations and structures, to fulfil certain economic objectives. Private entities will still control the economy (through ownership of the means of production), but the state will use its power to intervene on behalf of favoured interests that help it achieve its desired objectives. In other words, the use of discretion is central to this model.
The exemplar practitioner of political capitalism in today’s world is China. The Chinese economy now largely exists in private hands, but the Chinese state continues to intervene in a discretionary manner, favouring some entities over others to achieve economic or social objectives. In that sense, there is an absence of a uniform ‘rule of law’ in China, in so far that regulations may be applied selectively or not at all depending on the objectives set by the Chinese state.
According to Milanovic, if regulations are applied uniformly (ie, rule of law is practised), then over time the state loses its relative power over the private sector. This is the case we see in most liberal capitalist states across the world. However, if the state becomes too discretionary (and corrupt), it will stifle economic productivity and lead to economic stagnation. The Chinese state is remarkable in that it has struck a balance in using selective discretion to generate high rates of economic growth, though with accompanying inequality. Other countries that have managed this model well include Vietnam and Singapore, both of which have used state involvement to create prosperity. Increasingly, Cambodia, Bangladesh and Rwanda are following a similar trajectory.
There are two key reasons why political capitalism of this sort is less likely to be successful in the Pakistani context. A key ingredient in all successful cases listed is the presence of a technocratic, highly skilled, and motivated bureaucracy. Pakistan’s federal and provincial bureaucracies fail on all three counts: staffed with generalists in commanding positions, with low levels of average competence, and an incentive structure that prioritises self-reward over some larger public service motivation.
Secondly, all successful examples of political capitalism have been highly centralised, one-party states usually created in the aftermath of some major political upheaval, like a socialist revolution that wipes out an entrenched elite and creates an autonomous state, or a major ethnic secession that creates a strong attachment of the population with the state. Pakistani decision-makers salivate at the prospect of a one-party state but without paying attention to those additional ingredients.
Neither is the current hybrid regime capable of undercutting an entrenched, unproductive elite (since the civilian part is drawn from the same elite), nor has it managed to incorporate large swathes of the population through shared national or ideational attachment. If anything, it has managed to do the exact opposite of the latter by marginalising the most popular party and repressing its members and supporters.
These structural weaknesses of low, self-serving competence and weak autonomy and legitimacy are precisely why previous attempts at state-directed interventions in the economy created rent-seeking opportunities for local and foreign investors, rather than helped the economy out of its multi-decade slump. While the actual challenge lies in generating productive human capability through health and education, chasing temporary dollars continues to command most of the state’s attention.
The writer teaches sociology at Lums.
X: @umairjav
Published in Dawn, May 13th, 2024
For a better deal
DAWN
Published May 14, 2024
AS the IMF’s most habitual client globally, we often get a dose of the Fund’s harsh medicine. Each time, business, civil society and other groups rightly object to an IMF deal’s harsh terms, but mostly after it has been struck. As an IMF team will arrive soon for a new deal, they must coordinate to influence deal talks.
Some blame our leaders but others the IMF for harsh deals. The problem starts with our governments — from Musharraf to the PTI. In their zeal to get high GDP growth, they take the faulty path of high fiscal and external deficits and money supply growth, instead of high investment, productivity and exports that require politically costly reforms. That path soon leads to high inflation and falling dollar reserves, and finally to the Fund’s door. But just as doctors often mistreat serious diseases caused by bad patient habits, so does the IMF often misdiagnose and mistreat economic ills caused by state policies.
The immediate patient symptoms before the IMF are usually high inflation and falling reserves due to high twin deficits and money supply growth. To stabilise the patient, the IMF usually prescribes higher interest rates, rupee depreciation, higher taxes and cuts in state expenses. All these put a brake on GDP growth, albeit fake, and cause a huge loss of jobs and state services that hurt poor and small businesses more.
In our recent deals from 2000 to 2019, the IMF has also included issues that affect the twin deficits and money supply growth indirectly — State Bank autonomy; state units, circular debt and power sector reform; exchange rate and tax policy; etc. Even though we were at the peak of economic crises each time and needed major stabilisation, many IMF demands were rightly criticised for their sequence, extent and precise focus.
But things now differ. Economic policy targets macroeconomic stability, growth, equity and sustainability. We already have some stabilisation from the last stand-by IMF deal. Inflation and fiscal deficit are falling; reserves are up and the rupee has been climbing for months. Thus, we need an unorthodox IMF programme. We must not raise interest rates but cut them.
The IMF wants high interest rates to treat both inflation and falling currency and reserves. True, a stable rupee has been achieved via stringent controls on dollar demand for imports, profit repatriation, etc. which are slowing GDP growth. Once these controls are ended to raise GDP growth, reserves and the rupee may fall. But this pressure must be fixed via front-loading about half of IMF flows (and back-loading the rest to ensure compliance) and dollar flows expected from multilateral and bilateral donors rather than high interest rates. This will reduce fiscal deficit and create room for GDP and job growth.
The Fund often misdiagnoses economic ills.
Instead of indirect taxes and development and social spending cuts, the Fund must demand non-essential defence and civilian outlays cuts and increased direct taxes on non-taxed sectors and elites. If it signs a deal without this, it would be equally culpable in burdening the poor.
Such steps will help achieve both stability and growth. But durable growth will require more creative strategies to raise savings, investments, exports and outputs. Our savings must rise, being among the lowest regionally. This means that even for investment for domestic outputs, we often use foreign investment which creates profit repatriation liabilities without export earnings, thus raising our external deficit.
We must ideally use foreign investment for sectors that give export revenues and/ or help obtain high-end technical capacities. Increased exports require state-capital collaboration to enter the high-end export sectors. But growth policies are beyond the IMF’s remit, the wrong neoliberal take being that stabilisation will automatically give growth. This raises questions. The IMF must not overdo stabilisation now, to let us follow growth policies. It must ensure equity by requiring big outlays for the poor suffering from years of stagflation.
Beyond specific IMF terms, austerity-linked Fund deals imposed since 1980s don’t make sense, unlike earlier condition-free ones. Policy conditions encourage reform-averse states to adopt good policies, but they can’t afford them during economic crises when IMF aid must allow counter-cyclical growth policies. Donors must proactively apply policy conditions linked to bigger aid from bilateral and multilateral donors in normal times when the roots of crises are being laid via faulty state policies. Rich states must also change their unfair global policies that choke growth in poor states. Only then can recipient states achieve stability and equitable growth.
The writer is a political economist with a PhD from the University of California, Berkeley.
murtazaniaz@yahoo.com
X: @NiazMurtaza2
Published in Dawn, May 14th, 2024
Some blame our leaders but others the IMF for harsh deals. The problem starts with our governments — from Musharraf to the PTI. In their zeal to get high GDP growth, they take the faulty path of high fiscal and external deficits and money supply growth, instead of high investment, productivity and exports that require politically costly reforms. That path soon leads to high inflation and falling dollar reserves, and finally to the Fund’s door. But just as doctors often mistreat serious diseases caused by bad patient habits, so does the IMF often misdiagnose and mistreat economic ills caused by state policies.
The immediate patient symptoms before the IMF are usually high inflation and falling reserves due to high twin deficits and money supply growth. To stabilise the patient, the IMF usually prescribes higher interest rates, rupee depreciation, higher taxes and cuts in state expenses. All these put a brake on GDP growth, albeit fake, and cause a huge loss of jobs and state services that hurt poor and small businesses more.
In our recent deals from 2000 to 2019, the IMF has also included issues that affect the twin deficits and money supply growth indirectly — State Bank autonomy; state units, circular debt and power sector reform; exchange rate and tax policy; etc. Even though we were at the peak of economic crises each time and needed major stabilisation, many IMF demands were rightly criticised for their sequence, extent and precise focus.
But things now differ. Economic policy targets macroeconomic stability, growth, equity and sustainability. We already have some stabilisation from the last stand-by IMF deal. Inflation and fiscal deficit are falling; reserves are up and the rupee has been climbing for months. Thus, we need an unorthodox IMF programme. We must not raise interest rates but cut them.
The IMF wants high interest rates to treat both inflation and falling currency and reserves. True, a stable rupee has been achieved via stringent controls on dollar demand for imports, profit repatriation, etc. which are slowing GDP growth. Once these controls are ended to raise GDP growth, reserves and the rupee may fall. But this pressure must be fixed via front-loading about half of IMF flows (and back-loading the rest to ensure compliance) and dollar flows expected from multilateral and bilateral donors rather than high interest rates. This will reduce fiscal deficit and create room for GDP and job growth.
The Fund often misdiagnoses economic ills.
Instead of indirect taxes and development and social spending cuts, the Fund must demand non-essential defence and civilian outlays cuts and increased direct taxes on non-taxed sectors and elites. If it signs a deal without this, it would be equally culpable in burdening the poor.
Such steps will help achieve both stability and growth. But durable growth will require more creative strategies to raise savings, investments, exports and outputs. Our savings must rise, being among the lowest regionally. This means that even for investment for domestic outputs, we often use foreign investment which creates profit repatriation liabilities without export earnings, thus raising our external deficit.
We must ideally use foreign investment for sectors that give export revenues and/ or help obtain high-end technical capacities. Increased exports require state-capital collaboration to enter the high-end export sectors. But growth policies are beyond the IMF’s remit, the wrong neoliberal take being that stabilisation will automatically give growth. This raises questions. The IMF must not overdo stabilisation now, to let us follow growth policies. It must ensure equity by requiring big outlays for the poor suffering from years of stagflation.
Beyond specific IMF terms, austerity-linked Fund deals imposed since 1980s don’t make sense, unlike earlier condition-free ones. Policy conditions encourage reform-averse states to adopt good policies, but they can’t afford them during economic crises when IMF aid must allow counter-cyclical growth policies. Donors must proactively apply policy conditions linked to bigger aid from bilateral and multilateral donors in normal times when the roots of crises are being laid via faulty state policies. Rich states must also change their unfair global policies that choke growth in poor states. Only then can recipient states achieve stability and equitable growth.
The writer is a political economist with a PhD from the University of California, Berkeley.
murtazaniaz@yahoo.com
X: @NiazMurtaza2
Published in Dawn, May 14th, 2024
Privatisation divide
DAWN
Published May 14, 2024
WITH Deputy Prime Minister Ishaq Dar having clawed his way back to the centre of economic policymaking, a tussle between two competing viewpoints — one represented by him, the other by Finance Minister Muhammad Aurangzeb — was inevitable.
Mr Aurangzeb believes that Pakistan’s economy can no longer bear the burden of state-owned enterprises, which need to be privatised as early as possible. On the other hand, Mr Dar, who is foreign minister and a confidant of Nawaz Sharif, fears that all-out privatisation could deplete his party’s already dwindling political capital. Hobbled by high inflation, recent blunders in wheat procurement and rising energy costs, the party can ill-afford any agitation against privatisation.
Hence, no matter what the finance minister says, the two are not on the same page as evident in his outright rejection of Mr Dar’s concept of “strategic and essential SOEs”. “There is no such thing as strategic SOEs,” Mr Aurangzeb told a pre-budget conference. All SOEs, regardless of their categorisation, he asserted, would be handed over to the private sector. His stance on the ‘strategic’ SOEs is the opposite of what Mr Dar, who was previously finance minister and heads the important Cabinet Committee on Privatisation, had stated recently. Removing seven profitable public companies at the disposal of the Pakistan Sovereign Wealth Fund from the privatisation list, Mr Dar reportedly said that the government would restrict its concerns to “strategic and essential SOEs”, whose number — 40 — would be decreased after scrutiny.
The final decision on which the entities are to be categorised as strategic or essential is to be made by the Cabinet Committee on SOEs headed by Mr Aurangzeb. It might not be easy for him to have his way on their privatisation, despite support from the powerful circles that signed him up for implementing taxation, energy, and SOE reforms along with privatisation under the IMF’s tutelage. Mr Dar’s economic ideas are acceptable neither to the IMF nor to these circles. Under these circumstances, his transfer to the foreign ministry and later his elevation as deputy prime minister were perceived as major concessions from PM Shehbaz Sharif, although under pressure from Nawaz Sharif.
Put simply, the differences between Mr Aurangzeb and Mr Dar reflect the tensions within the ruling party as well as the compulsions of an economy that cannot pick up momentum until it has undergone drastic and politically unpopular changes. The disagreement between the current and former finance minister on privatisation has emerged at a time when the government is all set to start talks for another IMF bailout facility in order to revive the economy. How this disagreement within the government will sit with the lender, which is already wary of the risks attached to the execution of the economic stabilisation policies, is anybody’s guess.
Published in Dawn, May 14th, 2024
WITH Deputy Prime Minister Ishaq Dar having clawed his way back to the centre of economic policymaking, a tussle between two competing viewpoints — one represented by him, the other by Finance Minister Muhammad Aurangzeb — was inevitable.
Mr Aurangzeb believes that Pakistan’s economy can no longer bear the burden of state-owned enterprises, which need to be privatised as early as possible. On the other hand, Mr Dar, who is foreign minister and a confidant of Nawaz Sharif, fears that all-out privatisation could deplete his party’s already dwindling political capital. Hobbled by high inflation, recent blunders in wheat procurement and rising energy costs, the party can ill-afford any agitation against privatisation.
Hence, no matter what the finance minister says, the two are not on the same page as evident in his outright rejection of Mr Dar’s concept of “strategic and essential SOEs”. “There is no such thing as strategic SOEs,” Mr Aurangzeb told a pre-budget conference. All SOEs, regardless of their categorisation, he asserted, would be handed over to the private sector. His stance on the ‘strategic’ SOEs is the opposite of what Mr Dar, who was previously finance minister and heads the important Cabinet Committee on Privatisation, had stated recently. Removing seven profitable public companies at the disposal of the Pakistan Sovereign Wealth Fund from the privatisation list, Mr Dar reportedly said that the government would restrict its concerns to “strategic and essential SOEs”, whose number — 40 — would be decreased after scrutiny.
The final decision on which the entities are to be categorised as strategic or essential is to be made by the Cabinet Committee on SOEs headed by Mr Aurangzeb. It might not be easy for him to have his way on their privatisation, despite support from the powerful circles that signed him up for implementing taxation, energy, and SOE reforms along with privatisation under the IMF’s tutelage. Mr Dar’s economic ideas are acceptable neither to the IMF nor to these circles. Under these circumstances, his transfer to the foreign ministry and later his elevation as deputy prime minister were perceived as major concessions from PM Shehbaz Sharif, although under pressure from Nawaz Sharif.
Put simply, the differences between Mr Aurangzeb and Mr Dar reflect the tensions within the ruling party as well as the compulsions of an economy that cannot pick up momentum until it has undergone drastic and politically unpopular changes. The disagreement between the current and former finance minister on privatisation has emerged at a time when the government is all set to start talks for another IMF bailout facility in order to revive the economy. How this disagreement within the government will sit with the lender, which is already wary of the risks attached to the execution of the economic stabilisation policies, is anybody’s guess.
Published in Dawn, May 14th, 2024
Published May 13, 2024
DAWN
Pakistan’s external economy is plagued primarily with two structural problems. First, a high level of public external debt and second, overreliance on further external borrowings that not only increase the external debt stocks but also push the future cost of debt servicing. All other issues are ramifications of these two conundrums.
Our fragile and malleable democracy makes it too difficult for politicians to take the nation on board and find sustainable solutions to these problems of the external economy. A focus on short-term solutions prevail, and the government of the day, with varying levels of support from the military establishment, try to fix the balance of payments problems, often with the help of the International Monetary Fund (IMF) and friendly countries.
The role of the IMF has always remained a subject of intense debate revolving around the desirability for and efficacy of its prescriptions for the ailing economy. According to the State Bank of Pakistan, our public external debt and total external debt stood at $99.7 billion and $131.6bn, respectively, at the end of December last year.
The irony is that the IMF continues to prescribe reforms that provide temporary relief from the balance of payments problems, but do not enable Pakistan to ensure sustainable cuts in external debts in the medium to long term. The Fund’s programmes also do not put Pakistan’s economy on a high-growth trajectory for the medium to long term.
Focusing on IMF-enabled short-term respite remains top-priority instead of long-term, sustainable solutions
This, coupled with all kinds of weaknesses in our political/judicial systems, including the intervention of ‘the establishment’ has been hampering sustainable, strong economic growth for many years. In the absence of this growth, our reliance on external borrowing remains intact and the IMF’s requirements take centre stage in economic policymaking.
Keeping this in mind, it doesn’t come as a surprise for most Pakistanis that the IMF now wants to peruse Pakistan’s budget strategy before its approval from the federal cabinet. This was inevitable and, according to credible media reports, the inevitable has happened now.
During this fiscal year, ending on June 30, Pakistan has apparently overcome the balance of payments crisis thanks to a $3bn IMF loan augmented by crucial rollovers of previous loans of Saudi Arabia and China. For the next fiscal year, the IMF’s initial projection of the external financing gap is $22bn. Closing this gap isn’t easy if Pakistan doesn’t remain under the IMF’s umbrella reforms programme.
Exactly why the country is desperately seeking $6bn-$8bn IMF funding for three years, and that’s why the government’s priority is to maintain a good relationship with the Fund. If that means discussing the budget strategy with the IMF, so be it.
Pakistan has four major demands on its foreign exchange: Imports, external debt servicing, repatriation of profits and dividends earned by foreign companies and foreign investors in Pakistan — and financing of foreign education, health and travel expenses of Pakistanis.
The country also has four major sources of forex inflows, ie exports, remittances, foreign direct and portfolio investments, and funding from international financial institutions and friendly countries.
Being under the umbrella of the Fund programme signals to global investors the perceived safety of their capital
Being under the umbrella of the IMF programme signals to global investors the perceived safety of their capital and helps us attract foreign investment and even state funding from friendly countries. It also helps our exporters reach out to foreign markets with relative ease. So, securing IMF funding as soon as possible is a must, and that’s what the government is trying to do.
But exports and remittances, being non-debt creating forex inflows, have primacy and that too is being respected. The problem, however, is that with back-breaking cost-push inflation still above 17pc the corporate sector finds it too hard to boost exports of goods within a year or two.
But taking services exports, particularly information technology (IT) and IT-enabled services (ITeS) exports, to higher levels rapidly is possible. That is where Pakistani policymakers should continue doubling up their present efforts. Similarly, tapping the full potential of remittances is important. On both fronts, the government is making some efforts but those are too small to make a big change in near future. So far, the situation is less promising and outright is bleak.
During nine months of this fiscal year (July 2023 to March 2024), exports of services fetched $5.8bn — showing a year-on-year increase of less than 1pc, according to the Pakistan Bureau of Statistics. During the same period, imports of services consumed $7.5bn, leaving a services trade deficit of $1.7bn.
Experience has shown time and again boosting services exports without allowing enough rise in imports is just not possible, at least for the time being. A drastic policy overhaul is in order. During these nine months, remittances also grew from less than 1pc to $21bn, according to the State Bank of Pakistan.
On the other hand, Pakistan’s goods trade deficit during 10 months (July 2023-April 2024) totalled $19.5bn despite all import restrictions, many of which may go after the IMF offers a new loan. Then, the goods trade deficit would be equal to remittances, leaving the services trade deficit to be financed from borrowed foreign funds.
Pakistan can avoid this situation by promoting services exports, particularly IT and ITeS exports if it collaborates meaningfully with global IT giants like Google with the stated objective that IT and ITeS exports’ growth must overtake imports growth within a year or so.
It can also address the issue of goods export growth with the IMF with a clear request presented with enough rationale that the Fund should let Pakistan’s import curbs continue for some time. The task is easier said than done, but optimism and grit often make miracles.
Published in Dawn, The Business and Finance Weekly, May 13th, 2024
