Foreign Liquidity Crisis and the Economy – Pakistan

Abstract

During the waning days of the year 2013, the people of Pakistan were enlightened by the President of the country as a parting thought of the year,….”the begging bowl can‟t be broken..…people should be patient… the debt of Pakistan has increased from Rs 6700 billion in 2008 to Rs 14800 billion in 2013….only through democracy Pakistan can develop….all institutions, media, political parties should…do more.…” With such exhortations from President, the year ended. Taking exception, the rejoinder is that “begging bowl” can be broken as comparative experiences have shown us. It has been broken by a number of countries including India next door and many other countries. What a succor such exhortations are for ordinary Pakistanis, facing intensified burden of poverty, back breaking prices of basic food items essential for survival, a debilitating energy crisis, trundling through for a few scraps of fuel (see exhibit), and living under constant fear of terrorism. This is too wide a canvass; hence we shall limit ourselves to explore implications of the above. The central proposition of this paper is that breaking the „begging bowl‟ would need a firm resolve at structural transformation as outlined in this paper and it would be doubly difficult in current times than it was before. This would, require more than tinkering around with trade and exchange regime or chasing stabilization programs, papering over periodic liquidity crisis and near-insolvencies with expensive bridge financing, while squeezing the belt ever more tightly. For more than half a century we have been doing just that. Pakistani rupee has been steadily depreciating all along as we have gone through many standby programs but we are back to square one. Standby programs have failed to deliver from recurrence of crises. Look where we stand today. Instead, breaking the bowl would require structural transformation which Pakistan embarked upon rather half heartedly two decades ago, while experimenting with autarchy, socialism - Fabian or Islamic, nationalization, back to market system, bad governance and all, but never pursuing it through its fruition as other countries did. This transformation will be more difficult in current times than it would have been in previous decades. Let us see how far we succeed in outlining how this structural change can be accomplished…. or is there any other way out?