Fundamental economic changes must come now

Pakistan's economic crisis has deepened this week after the rupee declined to an all-time low against the US dollar while Standard & Poor's, the global rating agency, downgraded the country's rating on its sovereign debt to CCC-plus, just a few notches above default level.

These new pressures on the Pakistani economy underline mounting concerns over the deterioration in Pakistan's balance of payments situation in the midst of the global financial turmoil.

Added to these trends on Monday came rising pressure driven by a liquidity crunch as Pakistan's illiquid money markets saw volatile call money rates surge to a whopping 40 per cent before settling back to below 30 per cent.

In the meantime, an alarming increase in the government's borrowing from the central bank during the first eleven weeks of the financial year, which began in July, has further complicated what is a fast worsening picture.

All together, Pakistan's economic outlook is fast heading for a bad downswing. For many Pakistanis, the significant question is: Can Pakistan's economic fortunes recover from more than a year of downswing? The answer to that question must take account of some of the events which have taken place during this period.

The political turmoil unleashed in the wake of the situation which emerged when former president Pervez Musharraf dismissed Iftikhar Mohammad Chaudhary, former chief justice of the supreme court of Pakistan, has indeed taken its toll.

In this period since March 2007, Pakistan has remained a restless country, with mounting protests and demonstrations.

The culmination of such protest movements took place with a landslide defeat for Musharraf's loyalists in parliamentary elections in February of this year. A new government led by the Pakistan People's Party (PPP) has taken charge of the country with promises of giving a new direction to Pakistan.

Luxury of time

But that new direction has not arrived despite Musharraf being forced to resign in August in the face of threatened impeachment. What has come to the fore is a regime which is yet to demonstrate a workable plan to take Pakistan forward, both politically and economically.

The luxury of time is not on Pakistan's side. With global markets in turmoil and the international economy slowing down, it is not possible to imagine Pakistan being able to continue on its present course.

Furthermore, Pakistan's own leaders such as president Asif Ali Zardari are buoyed by unrealistic expectations. The Pakistani president has recently urged the global community to consider giving up to $100 billion (Dh367 billion) in assistance to Pakistan, to help the south Asian country overcome its economic challenges.

It is clear that in the midst of the global economic turmoil, this kind of money for a one-country programme is far from feasible.

The immediate focus of the government must essentially be to place its own house in order, dealing with long overdue reforms and hugely pressing issues. Across the country, there is much evidence of a breakdown of government caused by years of neglect of key institutions.

The economic challenges faced by Pakistan today are in no way recent. Their roots lie in the way the country has been governed over time. One such neglect lies in the failure of successive governments to overcome the challenge of dealing with a large black market economy.

The fact that less than 1.5 per cent of Pakistan's population compose the country's tax paying community, speaks infinitely louder than words on areas in need of a reform process to begin in the near future.

The writer is a journalist based in Pakistan.