Can Hafeez Shaikh pull Pakistan out of current economic mess?

Byline: Shabbir Kazmi

Ever before Imran Khan came into power, Pakistan's economy has been going through tough times. As per the norm the country delayed approaching International Monetary Fund (IMF). According to the latest reports, technical teams of the IMF and Pakistan are locked in negotiations for a bailout package and hope to strike a deal by 10th May 2019.

Adviser to Prime Minister on Finance, Dr Abdul Hafeez Shaikh has expressed hopes that the talks on bailout package with the Fund would turn out to be successful. However, he didn't mince his words and said that the upcoming budget would focus on attaining sustainable economic growth by addressing two of the contentious issues facing Pakistan, current account deficit and fiscal deficit.

In a sudden but disappointing move, the government announced removal of Governor, State Bank of Pakistan and Chairman, Federal Board of Revenue. These removals came at a crucial juncture when negotiations were held with the Fund and supposedly 'progressing' well. Prime Minister also hinted at further changes to his cabinet in the days ahead.

During the tenor of Khan, Pakistan managed to live on foreign exchangecontributed by Saudi Arabia, China and United Arab Emirates. However, inflows proved too paltry because there was no corresponding increase in exports and foreign direct investment. Even declining imports and rising remittances failed in bridging the gap.

The standard recipe of IMF mostly comprises of imposing new taxes and withdrawing subsides along with curtailing developmental expenditures under Public Sector Development Program (PSDP). Though, Khan's government has repeatedly increased interest rate, introduced new taxes and hiked electricity and gas tariffs, the IMF pressure has not eased. It has once again put Khan's government in a very difficult position by demanding an increase of 25% in power tariff with effect from commencement of next financial year (FY20). The government is also likely to resort to the hike in prices of POL products. Though, the hike would be aimed at increasing cess collection on energy products, it would be attributed to hike in global prices of crude oil.

Pakistan's trauma continues due to falling foreign exchange reserves. By 26th April 2019, reserves held by SBP decreased by US$219 million to US$8.805 billion, due to external debt servicing and other official payments. Country's total liquid foreign exchange reserves also declined by US$251 million to...