Next domino to fall? Avoiding Sri Lanka like situation developing in Pakistan
There are important lessons that Pakistani elite can learn from crisis in Sri Lanka
.jpg)
By Muhammad
Ragheeb-ud-din
Just as art imitates life, it seems that failed economies run by dynastic family politics and power hungry autocrats and the misfortune they bring onto their constituents also seem to imitate one another.
The crisis
engulfing the island nation of Sri Lanka and the current economic and political
crisis facing Pakistan though not complete copies of one another share several
similarities and hold important lessons for the political elite of Pakistan as
to what lies ahead should course correction not happen urgently.
For almost
two decades, Sri Lankan political landscape has been dominated by the Rajapaksa
brothers and their family with the important political offices of President and
Prime Minister alternating between the two.
Rajapaksa
brothers were initially hailed as heroes by most of the country due to their
role in ending the long running civil war against Tamils as well as for their
heavy investments in infrastructure projects like ports, roads and power plants
on the back of expensive foreign loans sourced from China and India. In 2019
large tax cuts and subsidies on fuel and energy were also offered in order to
further strengthen their political base.
.jpg)
Then in 2020
disaster struck as with the arrival of Covid-19 the tourism industry collapsed
due to lockdowns and foreign remittances were hit due to job losses in the gulf
and Europe leading to foreign inflows falling rapidly along with the exchange
reserves.
All of this
eventually lead to the country defaulting on its debt payments and unable to
pay for fuel, medicine and food imports leading to shortages across the
country. Rapid currency devaluation unleashed a wave of inflation across the
country. Hospitals ran out of medicines for patients and hours long queues were
established just to get a few liters of petrol to drive to work.
The economic collapse eventually led to civil
unrest which saw MPs’ shot and houses and properties of the ruling party set on
fire. Prime Minister Mahindra Rajapaksa, once hailed as the hero of the nation
has been forced to resign and go into hiding in a naval base in Colombo. The
younger brother Gotabaya Rajapaksa now stands alone amongst the four brothers
still holding as President and has now formed a unity government.
.jpg)
However the
opposition has refused to negotiate with the government, instead opting for
street protests and it seems unlikely that the weakened government whose future
is uncertain can take the tough economic decisions that will be a part of any
deal with the IMF.
Without
blaming anyone party or person it is not difficult to draw comparisons with
this situation for the political context in Pakistan since such disastrous
economic policies have always been present in one form or another in all of our
political setups. The only saving grace Pakistan has in this situation is that
unlike Sri Lanka foreign remittances have continued to break records preventing
the crisis from spiraling out of control but even this is a short term measure
that is bound to lose steam with foreign exchange reserves enough to cover only
2 months of imports.
Urgent,
decisive actions are needed if Pakistan wants to avoid Sri Lanka like crisis.
On the political front, date of elections needs to be announced to bring some
calm to the turbulent political landscape. On the economic front, fuel and
energy subsidies must end immediately and IMF program reestablished in order to
access aid and loans from multilateral lending institutions and reduce our
fiscal and current account deficit.
In the medium to long run the need to boost
our export base and reduce imports through expansion of manufacturing base
should also be amongst the main priorities in order to prevent default down the
line. Like Sri Lanka’s reliance on tourism we are also too reliant on one or
two sectors for export earnings and are in need of diversification to access
new markets and boost export earnings while increasing employment in the
country.
.jpg)
With regards to import substitution there is
need to incentivize in house production of automobiles, cell phones, heavy
machinery and oil processing in order to reduce import bill. Reducing reliance
on oil imports by shifting to hydel power is also a need of the hour which will
also simultaneously boost our water security and the agriculture sector.
Furthermore the tax free status of commercial
institutions runs by the establishment needs to be abolished and agriculture
and retail sectors need to be brought under the tax net in order to boost
revenues and reduce dependence on foreign loans in our budget. The most
pressing need of all is to reduce foreign borrowing for large infrastructure
projects which only adds to the growing balance of payment crisis.
Projects
like China Pakistan Economic corridor need to shift focus towards increasing
industrialization in the country through joint ventures and establishment of
special economic zones rather than just focusing on transforming Pakistan into
a transit route for Chinese goods or a dumping ground for cheap Chinese
products. Except for import substitution, export diversification and cheap
energy sources development, all other measures can be taken within a one year
time period and even the former require about 3 to 5 years.
A joint
effort needs to be made by all political parties to keep economy separate from
political squabbles and not to follow in the footsteps of Sri Lanka with
regards to economic policies in order to prevent the similar tragedy unfolding
on a nation once known as paradise island from playing out in our own country.
Post a Comment