Apart from managing the twin deficits (fiscal and current) in 2019, the government will be on its toes to clear two important tests: One is the stabilization program to be signed with the International Monetary Fund (IMF) and the second is the review of the Financial Action Task Force (FATF) for the possible removal of Pakistan’s name from the grey list. Presently, the government is resisting the temptation to exercise the IMF bailout option, but if it finds the fiscal deficit becoming unmanageable, it will be left with no other option than to implement some unpopular but extremely crucial economic-reform agenda, which is usually what comes with any IMF program. One thing is for sure: with or without an IMF program, the government will have to jack up its efforts for tax collection.
In the case of FATF, the government has to submit an ‘action plan’ to FATF in the first week of January, which will then be reviewed in the February meetings. If the plan is found to be acceptable, FATF will then ask for compliance and the government will be required to take the steps detailed in the action plan. The first report detailing compliance will be submitted by the government in May, and the next FATF meeting in June will examine the report and decide whether Pakistan gets a passing grade or not. If it passes, then the next compliance steps will begin, to be reported by October. If it fails, then Pakistan risks landing in the black list, with adverse consequences for the financial system.
Money laundering has become a significant political issue in Pakistan and the present government has vowed to crack down on what it claims is an enormous racket. But in doing so, it is entangling itself in a political imbroglio which may cause it to lose focus on some other pressing matters. There is no doubt that Pakistan’s latest engagement with FATF could prove to be a ‘blessing in disguise’ to address some underlying structural deficiencies but following external factors may also weigh heavily on the direction Pakistan’s economy takes in 2019.
- The geo-politics of the Middle East and the Gulf States and our relations with Qatar and Iran in the context of the Saudi Arabia and UAE support for our balance of payments.
- Pakistan’s relevance to the US after its decision of gradual withdrawal from Afghanistan.
- Pakistan’s relationship with Europe and its preparedness to avail trade opportunities particularly in the UK and generally in Europe post Brexit.
- Pakistan’s preparedness to avail export opportunities in China after the US-China trade war.
On the domestic front, political stability, the pace of governance reforms, the security situation, the impact of climate change on our agriculture, and the successful implementation of forthcoming trade, industrial, and economic diplomacy policies would be decisive factors for Pakistan’s economy this year. On the financial front, issues such as tax administration, rupee-dollar parity, global oil prices, inflation and rising cost of finance will keep the economic managers busy.
While 2019 may not be the ‘year of rise’ for Pakistan, the government may very well set the direction for the same if it takes correct decisions at the right time. The next two years are very crucial as they could either ‘make or break’ Pakistan’s economy. Pakistan was poised to become world’s fastest growing Muslim economy in 2017 ahead of Indonesia, Malaysia, Turkey and Egypt. Despite having achieved the highest GDP growth in a decade, Pakistan is still hampered by image problem which is gradually improving. While there is an urgent need to fix pressing challenges, more deep-rooted reforms are required to develop and attract talent to serve in the public sector and businesses. Instead of politicians, the community leaders, academics and intellectuals should come forward and play their role in societal transformation.