By Amir Zia
January 1, 2023
Bol News
The New Year begins with Pakistan adrift in a sea of economic and political uncertainty
For a politically polarised and economically impoverished Pakistan, the New Year starts on a dismal note. The mega-mess on the country’s political chessboard is stymieing efforts to fix the economy, while the deteriorating macro-economic indicators are fueling political and social chasms. In a nutshell, a myriad of political and economic crises are feeding on one another, pushing the state of Pakistan into unchartered stormy waters. And the ruling elite has no bailout plan — tried, tested or new — to save the country from the shipwreck that is increasingly becoming all too frighteningly possible.
But Finance Minister Ishaq
Dar’s obsession with the exchange rate, which he is trying to maintain at
artificially high levels by hook or crook, has emerged as the main bone of
contention in regard to the release of the 9th IMF tranche due since early
November. The IMF wants the foreign currency market to determine the value of
the Pakistan currency, while Dar is fixated on keeping the rupee over-valued.
This obsession has not just stalled the IMF programme, but created a parallel
black market. The continued fall in foreign remittances sent by overseas
Pakistanis is the result of a thriving black market.
The outflow of dollars to
Afghanistan through illegal means has also become a massive problem for
Pakistan. Until the US-led NATO troops remained in Afghanistan, the flow of
dollars was the other way round — from Afghanistan to Pakistan.
The other two main IMF
demands are energy sector reforms and expanding the tax base. Both these items
have been on the agenda of every successive Pakistani government, but none
wanted to pay the political price of their implementation.
The IMF wants Pakistan to
manage its circular debt now hovering at the staggering level of 3.5 trillion
rupees in both the power and gas sectors. This means hiking electricity and gas
prices, rationalising both, and slashing their distribution losses.
The IMF also wants the
government to mobilise an additional 600 billion rupees through taxes and
increased revenues. But all these measures are a big “no” for the Shehbaz
Sharif government, which has an eye on the 2023 general elections. But if the
government fails to take the steps asked for by the IMF, it will hurt Pakistan
even more.
According to experts, the
measures suggested by the IMF are painful, but the default on debt repayments
will be much more devastating for the country. Yet, reforms are nowhere on the
agenda of this beleaguered government, which appears to lack both the capacity
and the political will to take unpopular measures. Since coming to power in
April, the coalition government of the Pakistan Democratic Movement (PDM) has
wasted eight precious months by not taking the necessary steps. And if it
wastes another eight because of political expediency, the results will be
disastrous for the country. Therefore, the first six to eight weeks of 2023 are
crucial for economic decision-making and will define which path the government
wants to take.
Experts say that while
implementing the IMF programme, the government should try to go for a long-term
rollover of its short-term liabilities to get some breathing space. The flow of
money from friendly countries, like China and the Gulf states, could ease
pressure for a month or two, but things will inevitably go back to square-one
in the absence of reforms. So minus reforms, borrowing more to settle old loans
is a self-defeating exercise. And now, even Pakistan’s longstanding friends
appear wary of this never-ending cycle of dishing out loans, one after another.
Indeed, the working and
the middle classes, already suffering the brunt of record-high inflation and
the economic crunch, will further be squeezed, whether the government
implements the IMF programme or not.
The government’s failure
to give targeted subsidies is also compounding the problem. The IMF stands
opposed to untargeted subsidies, which benefit the rich and the upper classes
more than the deserving, at the cost of the national exchequer. These
untargeted subsidies need to be stopped — a decision which no government wants
to take.
While the industrial
output is declining in Pakistan due to the slowdown of the economy, including
the government’s measures to curb demand and squeeze imports, another big
challenge for the country comes from the agriculture sector. There are fears
that the wheat crop will be at least 40 per cent lower in 2023 due to last
year’s devastating floods and a steep rise in the prices of Di-ammonium
Phosphate, popularly known as DAP, used by farmers for sowing Pakistan’s main
food grain. According to the market sources, there has been a steep decline in
DAP sales due to its rising cost. This means a likely wheat shortage would
aggravate the economic crisis and push up the flour prices even further.
While the economic outlook
is bleak, on the political front uncertainty looms large against the backdrop
of the seemingly unending confrontation between the key political players. The
entire country is guessing whether the highly unpopular Shehbaz Sharif
government will be able to cross the August finish-line when the Parliament
completes its five-year term, and even if it does, at what cost? With the sword
of elections hanging over its head, this coalition government is in a state of
paralysis, avoiding those life and death reforms and decisions which are a must
to stabilise the economy. Given a chance, it would certainly want to extend the
term of the assemblies for a year or more, but that is easier said than done.
The paucity of time is the real dilemma for the government. It cannot call
early elections given the expected blowback from the voters, reeling because of
the record inflation, eroding incomes, and slowdown of economic activity.
So will the economic
situation change by the time elections are due in October or November 2023?
Even the senior pundits within the Pakistan Muslim League-Nawaz (PML-N) are not
ready to bet on the change of the country’s economic fortunes in such a short
time. The pain has to increase before the country’s economic health starts
recovering — and that can only happen in time, over a period of two to three
years. Therefore, early elections or even those on time do not suit the
political parties in the ruling coalition.
The state institutions,
too, find themselves cornered and short of choices. The negative perception
about many top faces in the Shehbaz Sharif-led government is a millstone around
their necks. While the institutions are silently working to politically and
economically stabilise the country, taking too much ownership of the PDM –
consisting mainly of the Sharifs, Zardaris and Maulana Fazl-ur Rehman & Co.
– offers bad optics. Although both the Shehbaz Sharif government and the state
institutions are working together for now, they have a history of trust
deficit. The Pakistan Army – under the command of the new Chief of Army Staff
(COAS) General Syed Asim Munir – is spread too thin on many fronts, including
fighting the new wave of terrorism. Playing a role to help end the political
instability without dirtying their own hands in politics will be a Herculean
task for the military high command. Yet, many Pakistanis believe that the
Pakistan Army – the country’s most disciplined, organised and modern
institution – alone can play a decisive role in disentangling the current
political knot the country is mired in.
Meanwhile, the tireless
anti-government campaign of former premier Imran Khan seems to have lost
momentum after his November 26 Rawalpindi rally. Although the Pakistan
Tehreek-e-Insaf (PTI) Chairman remains by far the most popular leader in the
country, his anti-government campaign seems to be losing steam. The system and
the state have proved too powerful for him – at least for now — as they have
managed to stall Imran Khan from dissolving the two provincial assemblies of
the Punjab and Khyber-Pakhtunkhwa, which he wanted to do in his bid to force
early elections. Imran Khan is playing with an increasingly weak hand because
of an unreliable ally in the form of Chief Minister Punjab Chaudhry Pervaiz Elhai and his Pakistan Muslim League-Quaid-e-Azam (PML-Q), and the wavering of
many lawmakers within the ranks of his own PTI. The ferocious and
no-holds-barred character assassination campaign and the string of cases
against him show what awaits him in 2023 as his opponents in the government get
relief after relief in mega corruption cases. Despite his massive public
support, Imran Khan will have to perform a high-wire act to mend fences with
the military establishment and revive the trust of a number of foreign and
local stakeholders in the fact that he won’t act just as a spoiler, but will
play ball within the conventional boundaries of Pakistan’s statecraft. But for
now, it seems 2023 will be a tough year for Imran Khan, even while making the
life of his political opponents tough.
In the midst of all this,
is the renewed speculation about the installation of a technocratic government
with a long-term mandate? While the PTI and apparently the PDM both reject the
very idea, it is seen more as a test balloon than fact — at least at
present. However, if someone, somewhere decides to turn the speculation
about the technocrat set-up into reality, at least a section of the mainstream
political parties will have to take ownership for it – covertly or overtly. In
the present scenario, any possible technocrat set-up would suit the PDM,
because it would take all the unpleasant decisions and allow the current set of
ruling parties to recover from the dent in their following because of their
latest stint in power.
In a nutshell, political stability appears elusive in 2023’s Pakistan, where elections appear so near, yet so far.
No comments:
Post a Comment