By Abida Amani
Over the past two years, Pakistan has been growing slowly, with its economy expanding just 3.2 percent in 2017 and 3.8 percent in 2016. Over the course of 2018, however, economic troubles have begun to mount. Crude oil prices have been increasing rapidly; inflation has broken the 7 percent mark; and expectations of higher interest rates have caused property prices to fall by as much as 23 percent.
All this has generated pressure on Pakistan’s new government to respond to the economic challenges. Pakistan’s new prime minister, Imran Khan, who was born in the northwest Khyber Pakhtunkhwa province, comes from a political party that emphasized growing economic growth as a key campaign issue. He has stated that government spending will be reined in to boost GDP growth, while adding an additional $18 billion to the country’s national kitty over the next five years, according to Pakistani media.
To deal with its growing fiscal deficit, the government expects the Central Bank to intervene in the foreign exchange market. According to reports, Deputy Governor (Economic) Sahar Basra met with the head of Pakistan International Airlines and other CEOs of government-owned enterprises to explain his plan to bolster the economy. Additionally, with Pakistan’s plummeting exchange rate against the U.S. dollar, the central bank has launched a short-term currency swap with China, subject to certain conditions, to strengthen Pakistan’s balance of payments.
During its first year in office, the ruling party attempted to implement sweeping privatization of various state-owned enterprises. They failed, however, after these efforts sparked protests from affected employees and threats of demonstrations by the workers’ unions.
The government has also implemented a number of positive economic policies, including liberalizing foreign investment rules, allowing foreign companies to own majority stakes in the major telecommunications sector, and harmonizing Pakistan’s tax laws with the United States.
The government has been quick to criticize its predecessor’s economic policies. In January, Prime Minister Khan said, “You cannot build a modern economy without a modern education system. The education system was not ready. Unfortunately, the biggest structural failure was the education system and, overall, lack of focus on economic development.”
In addition, Khan called his predecessor Nawaz Sharif’s plan to add a $500 million “by now” Pakistan International Airline to the import quota “insane.” Instead, Khan said he plans to give more funds to educational institutions and hospitals.
At the same time, the Pakistan Tehreek-e-Insaf party that controls the central government has insisted that its position as a second democratically elected government will have positive effects on the economy. “Next year will be the best year for economic activity and then we’ll make these changes step by step,” Dr. Anjum Nisar, an MP from the ruling party, said in May.
However, the numerous forces that are converging to challenge the economy might derail the ambitious plans of the government. The uncertainty created by the sharp increase in crude oil prices over the past few months has added uncertainty in Pakistan’s uncertain business environment. More importantly, Pakistan’s private-sector entrepreneurs have expressed dissatisfaction with the main plan presented by the Pakistan Tehreek-e-Insaf (PTI) party. According to a recent study of Khan’s economic policies by the Lahore Economic Policy Institute, by the 2019-20 government, the government will be devoting over 60 percent of its development budget to public sector development. The consultants said the PTI plans to make a similar move next year in its economy policies.
Business owners would like to see the PTI focus its effort on boosting private-sector growth, diversifying the tax base, reforming the education system, and reducing gas and electricity prices. They also worry that foreign banks will increase their debt-servicing costs when the foreign currency reserves fall.
For now, investors are shying away from the country’s stock market amid this uncertainty. The Karachi Stock Exchange’s benchmark KSE-100 Index was down by 40 percent since its June high, according to Geo News. This trend is also expected to impact Pakistan’s economy as companies cut investment plans and decrease profitability.
With uncertainty and turmoil looming in Pakistan’s future, policymakers are scrambling to find a way to address Pakistan’s economic challenges.