Dr Hafiz Pasha

Usman Nizamani

 

Hafiz Pasha Discusses Pakistan’s Economic Situation on InferTalks
By Elaine Pasquini

Washington: Former Pakistani finance minister Dr Hafiz Pasha discussed Pakistan’s economic situation with InferTalks host Usama Nizamani on his August 4, 2023, program.

Currently, Pakistan’s most pressing economic issue is the country’s external debt of $126 billion. On July 12, however, the International Monetary Fund approved a nine-month standby arrangement for Pakistan in the amount of $3 billion to assist in servicing the country’s foreign debt obligation.

This year, Pakistan is going to be spending almost 60 percent of its federal budget on paying the interest payments on debt, Pasha said, and “this is hopelessly unsustainable.”

Restoring Pakistan’s economy to the path of “rapid, inclusive and sustainable growth” is a top priority for the government, requiring strong measures and reforms, he added.

Another dominating problem is the large imbalance between Pakistan’s exports and imports. “There have been years where our imports were nearly double our exports,” he explained. “Clearly that is unsustainable because it leads to a very large trade deficit.”

Large flows of remittances from Pakistanis living abroad have helped Pakistan’s economy, but there are years when the gap becomes too large. Two years ago, the economist noted, there was a gap of almost $17.5 billion in the current account deficit which led to a massive depletion of Pakistan’s foreign exchange reserves.

In addition, climate change needs to be tackled immediately as global warming is beginning to have a serious impact on the glaciers in Pakistan, leading to large outflows of water causing flooding in the delta region. Last year’s historic floods cost the economy $30 billion.

Amid Pakistan’s declining GDP, last year over one hundred million people fell below the poverty line. “This has never happened before,” Pasha lamented. “The unemployment rate in this country is approaching nine percent and last year two million workers lost their jobs.”

At one time, Pakistan was one of the largest textile exporters, he pointed out. Now that position goes to Bangladesh. “So, the problem is basically that Pakistan has not invested adequately in modernization of its industry to make it more competitive,” he said. Among other infrastructure limitations, the cost of electricity is reducing Pakistan’s competitiveness.

“The power sector is the black hole which has begun to restrict the economy and its financial viability,” Pasha noted. “Pakistan has one of the largest losses in this sector in the world,” with transmission, distribution and billing losses close to 25 percent. “You can never sustain a sector with this kind of loss. We need to improve management of the sector.” But, he added, Pakistan’s government “has taken the right decision to move toward renewable energy and nuclear energy.”

Another “unfortunate problem,” Pasha said, is the demise of the cotton crop, which is the “single most important raw material for our exports.” Over the last 15 to 20 years, cotton, “through some very injudicious and interest-driven politics” was replaced by sugarcane, he continued. “And today Pakistan needs to import almost 40 percent of its requirements of cotton. After independence, Pakistan was the major exporter of cotton to India. Today, indirectly, or otherwise, Pakistan is a major importer of cotton from India. That is the extent to which our agricultural sector has not been able to cater to the needs of our country.”

On a positive note, however, over the last few years the government has “restored the cotton support price and this year we have offered a good price and we need now, however, to go to the other extreme of withdrawing the support price for sugarcane,” he said. “So, if we move out of sugarcane and increasingly move towards cotton, back it up with adequate fertilizer pricing and adequate credit particularly to the farmers in south Punjab where much of the cotton is grown, and go with the proper set of economic and financial policies, we should be able to once again come back to about 14 to 15 million bales of cotton.”

Pasha agreed with Nizamani’s point that, considering climate-induced hazards that occur, some kind of insurance policy might be needed with respect to farmers’ crop production.

Pakistan needs some measures of crop insurance, he said. “This is something we have never really worked on, but other countries have developed systems of crop insurance at relatively low cost and that should be built into the financial arrangements particularly with the medium-size and large farmers.”

“We need to develop a resilience and action plan against climate change,” he stated, praising the Pakistani government for working on climate and other programs. “We were fortunate when we went to the conference on financing of the flood reconstruction, we were able to mobilize about $9.5 billion, some of it diverted from other projects. There is a realization globally that Pakistan is one of the most vulnerable countries and we have to give top priority to investment in flood mitigation and management.”

Pakistan continues its efforts to increase foreign direct investment in the country and to enhance the ease of doing business with “one window operations” provided by the Board of Investment, Pasha explained.

“Now this is a welcome step but for this to happen we will have to clearly improve the regulatory functions and the massive amounts of documentation that are required…and the illicit transactions that inevitably take place,” he said. “This could be reduced by stopping human face contact and the establishment of proper internet and other arrangements. Pakistan can move to the twenty-first century in terms of transactions.”

In addition, we have to ensure that we have the “necessary financial wherewithal” to meet our obligations and other problems, he concluded. “Efforts at trying to mobilize large amounts of foreign investment particularly from the Middle East in our mineral, agricultural and IT sectors are welcome, but they’ll have to be based on hardcore realism and on really facilitating one step window operations.” 

(Elaine Pasquini is a freelance journalist. Her reports appear in the Washington Report on Middle East Affairs and Nuze.Ink.)