Over the last 18 months, Pakistan’s economy has gone from bad to worse. It may be true that the country faced some serious structural problems, but the mother of all evils was the ‘inability of the economic managers to identify the real causes of economic downturn and failure to take the appropriate remedial steps’.
Lately, the ruling junta suffered from the worst ‘confidence deficit’. It was mainly because the bad decisions were attributed to the conditions imposed by the International Monetary Fund (IMF). These included persistent hikes in interest rates, increases in electricity and gas tariffs and on top of all penalisation of those who still bother to pay taxes on their income.
The budget deficit ballooned due to lavish spending, excessive borrowing, both locally and internationally and complete failure in containing inflation. Persistent hikes in interest rates, electricity and gas tariffs rendered Pakistani exporters uncompetitive in global markets. On top of all imports of essential goods/raw materials/spare parts were cubed in the name of ‘better management of paltry foreign exchange reserves’.
Media was bombarded by the news of delays in staff-level review by the IMF and often it was said “IMF has become more stringent/it is not being considerate”. The least attention was paid to a proposal for containing the budget deficit and extravaganzas continued. An impression was also given that the top hierarchy, both civil and military was making the highest level contacts to get the IMF tranches released.
It is on record that now remittances by overseas Pakistanis exceed the country’s exports. According to the latest SBA signed with IMF, Pakistan has been promised US$3 billion in three tranches over the next coming months. The maligning of overseers Pakistanis and also those who are leaving Pakistan due to unemployment and denial of voting rights to overseas Pakistanis are indicators that how much importance is being given to those sending billions of dollars to Pakistan every month. It is on record that overseas Pakistanis have been remitting around US$2.5 billion per month.
It is on record that successive governments have failed in constructing water reservoirs and dams and also maintain watercourses. The result is every year the country faces either flush floods or drought. The other irritants are water logging and salinity. This directly impacts the production and per-acre yield of different crops. In Pakistan, the yield of most of the crops is far below the global average.
The prevailing agriculture landscape prompts us to talk about huge post harvest losses. Reported postharvest losses of major crops range from 15% to 25%. This is mainly because of the lack of modern grain storage silos. It is highly regrettable that successive governments have failed in facilitating the entrepreneurs to construct grain storage silos.
According to informed sources, the capacity of nine warehouses, approved for storage of food grain is paltry 80,000 tonnes. All of these warehouses are located in Punjab and have been established outside the government policy of promotion of electronic warehouse receipt (EWR) financing.
It is also worth noting that around three financial institutions lent PKR700 million against EWRs issued worth PKR one billion. By no standard, this can be termed ‘an excellent’ performance.
For the current financial year, FY24, the State Bank of Pakistan (SBP) has fixed an indicative lending target of PRK2.25 trillion to the agriculture sector. Surprisingly, out of this a paltry amount of PRK1.8 billion will be lent under the EWR regime.
It must be kept in mind that the agriculture/rural economy is the driving engine of Pakistan’s economy. It provides employment to 65% of the country’s population, produces food for the whole country, and grows raw material for the two large-scale industries i.e. textiles and clothing and sugar.
It is necessary to reiterate that the local urea fertilizer industry is not being run at the optimum capacity utilisation level. It has a nameplate capacity of 7 million tonnes, but only 6 million tonnes of urea is being produced. Running these factories on imported LNG can help in producing an export surplus of a minimum of one million tonnes of urea.
It is encouraging that Saudi Arabia has agreed to establish a 300,000 barrel per day crude oil refinery in Pakistan. While the commencement of operations may take 3 to 5 years, it is also necessary to revamp the existing local refineries. Sulfur separators have to be installed at the local refineries to produce low-sulfur furnace oil. This will promote the consumption of furnace oil by the power plants. Pakistan is already exporting high-sulfur furnace oil; production of low-sulfur furnace oil will help in earning extra foreign exchange.
This is in no way any comprehensive plan to strengthen Pakistan’s economy, but taking each small step can bring prosperity to the country.