Pakistan’s dismal economic growth to continue

An edited version of this article was first published in The Express Tribune on Dec 29, 2012.

Islamabad – Pakistan’s current dismal economic growth and its worsening fiscal conditions are likely to persist in 2013, leaving the country at the mercy of international lenders.

Ashfaq Hasan Khan, dean of the National University of Sciences & Technology’s business school, made these predictions during a consultation in Islamabad on Friday.

The consultation was organised by the Center for Research and Security Studies (CRSS) to reflect on Pakistan’s performance during 2012 in the areas of economy, energy, law and democratization.

Khan said Pakistan will face a large financing gap in 2013 and it will not be able to service its external debt obligation with the State Bank’s $8.5 billion reserves. The result: a return to the International Monetary Fund (IMF).

“Pakistan has no option but to go to the IMF once again for a bailout package,” he said. “The sooner we go the better.”

Khan said it is not certain if the IMF would negotiate with the outgoing government.

Public debt is likely to rise sharply owing to a “large budget deficit and depreciation in the rupee’s value.”

“One rupee depreciation will add Rs60 billion to the public debt,” Khan said.

He suggested Pakistan go to the IMF for a new programme, bring down the fiscal deficit by 3 to 3.5 per cent in the next three years, implement tax reforms and accelerate privatization of the public sector enterprise that are bleeding money.

“The issues are not insurmountable but there’s no quick fix and an honest, competent and patriotic leadership is required (to revive the economy),” he said.

Earlier, Khan painted a dismal picture of the current economic situation. He said the economy’s growth has slowed down to around 3 per cent, the investment is only 12.5 per cent of the Gross Domestic Product (GDP) – the lowest in 50 years – and large scale manufacturing growth is 0.5 per cent per annum.

“There are no two opinions within and outside the country that Pakistan’s economy has never been in such bad shape in the last 65 years,” Khan said.

The public debt more than doubled in (the past) four years and the country accumulated over $20 billion in external debt in the same period, he said. Moreover, Pakistan lost $6 billion of (State Bank) foreign reserves during the past 16 months.

Khan said Pakistan did not have a finance minister for six months at a time when the world economy was suffering from the 2008-09 global food and fuel crisis, which he said shows that “the economy was never on the government’s radar.”

He cited the State Bank’s Annual Report 2010-11 and said that while other emerging economies in the region recovered from the food and fuel crisis, Pakistan is still in “low growth mode.”

Energy woes

During the second presentation at the consultation, Arshad Abbasi, an energy expert, prescribed cheap hydroelectricity as the solution for Pakistan’s energy crisis.

“The cost per unit of hydropower electricity is only Rs0.19 per kilowatt-hour (kWh) compared to Rs18 per kWh for furnace oil,” Abbasi said.

He said the government of Pakistan has so far neglected hydropower, with some of the projects showing zero progress even after years of planning. The government needs a “national mission statement” in 2013 to accelerate work on these hydropower projects, he said.

Currently, 70 per cent of Pakistan’s energy is coming from thermal power for which we have to import fuel, Abbasi said.

The residual fuel oil being imported is full of impurities with around 8 per cent water content, so four times more fuel is required to produce the same amount of energy, he said. This increases the tariff for the consumer, he added.

Abbasi said Pakistan’s energy crisis is due to “energy mismanagement.”

The CRSS is an Islamabad-based research and advocacy organisation focused on security, radicalization and governance issues.

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