Pakistan can avoid going down the path of economic meltdown

By Mazhar Iqbal Mazhar

Pakistan can avoid going down the path of the economic meltdown of Sri Lanka. The country will need to get out of the political instability as early as possible, the analysts have warned.

Pakistan’s currency has been plummeting against the US dollar and the delay in the release of a crucial $1.17 billion installment from the International Monetary Fund to Islamabad has also added to the existing economic crisis.

Bloomberg which is a leader in providing market data from around the world through its branded analytical tools and various platforms has recently published a list of those countries that are most at risk of default in 2022.
Unfortunately, Pakistan is also included in this list. The title of the said report itself tells the stories of the failures of economically weak countries and their poor economies.
The list is based on four indicators namely government bond yields of any country, credit default risk situation, interest payment ratio to GDP ratio, and government debt to GDP ratio.
According to the latest research, with a 15 % interest rate, Pakistan’s government bond yield has recently been calculated as performing at the lowest levels.

20 years13.594%+2.6 bp+165.1 bp7.81-0.51 %-25.41 %28 Jul
Pakistan’s state bond performance

which means that this bond is in a more dangerous situation than before.

A country’s government bond yields start to cause trouble for its central bank when it has to readjust interest rates abnormally to protect its currency.

We have also seen how the Pakistani currency has nosedived in recent weeks.

According to economic analysts, former prime minister Imran Khan’s government ignored the complexities of financial issues. The previous Pakistan government gave unlimited powers to the State Bank to play havoc with interest rates.
If the PML-N government is calling the aggressive decisions of Imran Khan’s government the root cause of Pakistan’s economic problems, then there may be a lot of truth in it.
Because Pakistan’s economic problems, like many other economies around the world, were further aggravated by the pandemic and the war situation in Ukraine.
Some analysts are comparing Pakistan with Sri Lanka. Before making a comparative assessment of Sri Lanka and Pakistan, we have to examine the objective economic conditions of both countries.
One of the major reasons for Sri Lanka’s complete economic and political collapse has been attributed to its financial sovereignty being caught in China’s ‘debt trap’.
To some extent, this revelation should be an eye-opener for Pakistan, because China certainly has its share in the economic crisis that Pakistan is heading towards.
It is worth noting that Pakistan in the Imran Khan era had started thinking of aggressive economic policies in the context of its traditional friendship with China.
This strategic economic policy change was linked to the change slogan of Prime Minister Imran Khan in 2018.
The capitalist and tax-based financial systems and institutions in the Western World were skeptical that Imran Khan’s tenure as prime minister would complicate the repayment of international debt.
During his tenure, the political arrogance of the PTI government was on one side, while the economic woes of the country were rising on the other side.
As a result of Pakistan’s economic urgency, the former government was forced to establish contacts with Beijing to seek assistance.
Many major economic analysts have been analyzing the economic situation of Pakistan and comparing it with the major crisis in Sri Lanka.
Like Sri Lanka, Pakistan is facing problems of a most expensive external debt, high inflation, an increase in unemployment, and a shortage of food and medicine.
For most governments in Pakistan, the economic and political deterioration is a legacy problem.
However, the present political leadership of the country is showing appalling negligence in ignoring these issues.
The recent political mess created by PML-N after the results of the Punjab by-elections was a self-destructive exercise. The country does not afford instability at this critical juncture.
Imran Khan’s PTI party has won the by-elections leading to widespread speculation in the media that this could be the political resurrection of Imran Khan and his possible return as Prime Minister of Pakistan.
Imran Khan’s big wins in Punjab have come from seats where PTI’s defected member had earlier been disqualified.
Therefore, it can be said that PTI has retained its already strong constituencies. So the PTI has nothing to show that it has expanded its political base.
PTI’s foreign policy was badly muddled by both Imran Khan’s own predictions about China and the controversial statements of his far-sighted Foreign Minister Shah Mehmood Qureshi.
While both of them put Pakistan firmly in China’s orbit and Pakistan was starting to look ahead with the fascinating concepts of the Islamic bloc comprising Pakistan, Turkey, Malaysia, etc.
In fact, Pakistan was geopolitically aligning itself with countries that were clearly hostile to the US controlling the global financial institutions.
There was a clear indication that the US did not trust Pakistan during Imran Khan’s regime.
This was realized by Pakistan when Saudi Arabia showed its changed side by putting a soft corner for PM Imran Khan aside.
When he went to Jeddah with a bail-out request, the powerful bloc of Arab monarchies led by Saudi Arabia urged him to clearly express his political and economic policy towards Saudia’s rival countries.
As soon as the features of the policy were revealed, the creditor countries led by the United States began to tighten their grip.
On the other hand, Pakistan was also struggling to get out of the sanctions of the FATF.
It is a universally acknowledged reality that if the countries providing the most expensive loans do not have access to the economic policies of the countries receiving the loans, the creditors will not offer a soft ground.
Keeping in view the internal political dynamics of Pakistan the results of the recent by-elections are alarming for many creditors.
They can see that the political mood is in the favour of the return of Imran Khan to the center.
This clearly means that the political access of the bloc of creditor countries and especially the United States to Pakistan may be in jeopardy.
Currently, international organizations are trying to estimate the minimum time it would take for Pakistan’s economy to recover under the current political conditions.
If we look at the overall political mood of the country, it may be even more difficult to predict the timespan for economic recovery after the return of Prime Minister Imran Khan.
Pakistan can avoid going down the path of economic and political disintegration of Sri Lanka. The country will need to ensure political stability in the shortest possible time.

The writer can be contacted via Twitter @MIMazhar.

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