EDITORIAL: The currency faces a free fall. Not only is stock market’s mood depressed, secondary market rates are also moving up. Pakistan’s overall economic structure for the past few decades remains unsustainable.
The pressure of a combination of factors that include global inflation as a result of disruptions of supply chains accentuated further by the ongoing Russia-Ukraine war that the newly-formed weak coalition government in Pakistan is faced with cannot brook any delays in decision-making as its failure to take appropriate measures would only make matters worse and the situation more dire.
A wave of despondency, hopelessness and anxiety pervades the country which, if allowed to persist, can cause more damage and suffering, to say the least.
The equation is simple. Increase the petroleum prices to end the subsidies (perhaps in a phased manner) and bring the International Monetary Fund (IMF) back on board. This will help the markets attain some stability and reassure bilateral and other multilateral lenders who all are linking their would-be support to the IMF’s nod.
This would, however, require the coalition government to declare that it would stay and serve out the remaining tenure until the 2023 general elections. If this is not to be done to avoid the negative fallout of the extremely tough economic measures required under the Fund’s programme then the government would be well-advised to dissolve the National Assembly and make way for a caretaker setup. An interim government would certainly deal with myriad economic challenges, albeit on a day-to-day basis, until a new government is formed after the general election.
It is needless to say that the cost the country is bearing due to policy inaction by the government is unsustainable. It is true that economic conditions were not good earlier. It is also true that the global commodity inflation cycle is pushing the vulnerable economies to the edge of a precipice. Sri Lanka and Argentina have already declared bankruptcy while Tunisia may well be on that trajectory.
Then there are a number of other countries whose economies are in a tight spot. Pakistan is one of them. The situation, therefore, requires the government to take some unpopular decisions such as passing the impact of increasing global energy prices on to consumers, and import compression through fiscal measures and non-tariff barriers to lower the import bill in days of high prices to save scarce usable dollar reserves.
The Pakistan Tehreek-e-Insaf (PTI) government was to take the requisite tough decisions at the cost of its popularity. The vote of no-confidence against the then prime minister, Imran Khan, made it impossible for the PTI government to implement the committed prior actions under the IMF programme. The result is: the seventh review under the programme remains incomplete. The situation has worsened further since then.
The PTI government froze the petroleum prices in the beginning of March. In April, the new government was formed. But up until the present time they have not reversed the decision taken by the PTI in its last days because of the same political compulsions that PTI faced. And that is draining the limited buffers in the economy.
The political and economic uncertainty is making situation even worse. The PKR-USD parity has crossed the 190 threshold. And there is no support from anywhere. If the policy inaction persists, the currency would keep on sliding while domestic market interest rates would keep on increasing.
And eventually, the government would have no other option but to increase the petroleum prices. More the PKR depreciates the more would be the need of increasing energy prices. And higher would be the interest rates, as the government has to rely on domestic sources for deficit financing. In other words, the immediate outlook remains bleak.
Copyright Business Recorder, 2022
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