Last week, crucial economic and political decisions took place in London. Pakistan Muslim League-Nawaz (PML-N) within the Pakistan Democratic Movement (PDM) was getting cold feet. The party leadership probably had second thoughts. PML-N is the face of the incumbent government and the party’s popularity is to be adversely affected by tough (but inevitable) economic decisions.
Some political bargaining probably had taken place with other concerning parties — mainly Pakistan People’s Party (PPP) and the powers-that-be, on how long the government to stay, seat adjustments in the next elections, paving way for Nawaz and Dar to come back, and most importantly how to suppress Imran Khan’s upcoming ‘long march’.
The other issue was the conflict within the party on how to proceed and who would be (effective) in-charge of key portfolios such as energy and finance. In some TV appearances, ex-finance minister and economic (more of accounting) czar of PML-N (Ishaq Dar) openly contradicted the line of direction the current finance minister Miftah Ismail was toeing.
This is not appropriate to say the least. It clearly undermines the authority of the sitting finance minister. The message of Dar is either to zip up (remain silent) or step up (come and run the show himself). One cannot hide behind and let the sitting finance minister to take the brunt while keeping the hope alive for those who desire the Dar style of economics. This is not good for the country and for the morale of a sitting minister.
It appears that the government has taken the decision to stay and fight. That is good. It appears that the economic consensus is to get back to the International Monetary Fund (IMF) programme as soon as possible to bring stability in the markets and to improve the sentiments. The policy inaction is dangerous under the current circumstances. There are real chances of defaults without doing anything. This fear must come to an end. And for that success of upcoming mission’s talks (from 18th May) in Doha is imperative.
The government needs to phase out energy (fuel, electricity, and gas) subsidies. Then the fiscal adjustments for subsidies given so far and the potential loss in revenues should take place as well. For that, development spending must be cut further and possibly new revenue measures have to take place (if not now) in the upcoming budget for the next fiscal year. Then tax exemptions need to end, as agreed with the IMF.
It is going to be a bumpy ride. If they do not swallow the bitter pill today; the outcome would be adverse in the coming few months. The currency has gone into a free fall due to absence of foreign inflows to service debt and finance the current account.
Then the fiscal financing of subsidies will take market interest rates further high, as the reliance is (almost) solely on domestic banking sources where commercial banks are getting concerned on too much exposure to a cash-strapped government. The IMF’s nod to open up other financing avenues, which easing pressure on rates.
The other fear is inflation due to rising energy prices. That is a real fear. Inflation is bound to grow due to this. However, in the absence of timely decisions, inflation could be even higher. The currency would keep on depreciating. Nothing is more inflationary than an increasingly weak currency in a country, which is largely relying on imports. More the decisions are delayed, higher the impact.
It is wiser to choose the path of taking political pain today. That is perhaps the decision of the London huddle. If that is the case, the government is to stay for the time being. And seeing that, the next six months will be tough. It makes little sense for incumbents to leave soon after November-end.
The PML-N government ought to have avoided going for the vote of no-confidence against the then prime minister, Imran Khan. It’s a sunk cost. Now it is time for salvage. One way could have been to leave today by putting all the blame on Pakistan Tehreek-e-Insaf (PTI) government to minimize the damage to its electoral prospects.
However, this can bring further uncertainty. And it makes no sense to leave in a month or two unless IK’s pressure is too much to withstand.
Thus, playing till the end can help salvage the economy. If the global commodity super cycle recedes, a friendly budget could be offered in June 2023 for fiscal year 2023-24. Then the PDM would be able to undertake electoral reforms and work towards disposing of cases against its leaders to its satisfaction.
This seems the plan. Let’s see how IK would take this. His best bet is in his planned ‘march to Islamabad’. If the government and powers-that-be survive IK’s challenge successfully, only then can they have a sigh of relief and pursue their agenda they ousted IK for. Nothing is certain for now. The next few weeks are going to be very interesting. Fingers crossed.
Copyright Business Recorder, 2022