‘Grand dialogue’

EDITORIAL: Prime Minister Shehbaz Sharif has, while addressing an inauguration ceremony of Indus Hospital in Lahore, called for a grand dialogue on economic policies between all stakeholders for progress and prosperity of the country.

The Pakistan Tehreek-e-Insaf (PTI), the only major political party besides Jamaat-e-Islami that is not part of the government coalition, promptly spurned this call.

Shehbaz Sharif’s call is being touted as a continuation of his offer as leader of the Opposition for a ‘charter of economy’ to ensure that all stakeholders are on board to take politically extremely challenging economic policy decisions — an offer that was also spurned by the then Prime Minister Imran Khan.

The fact that the economy is in an impasse today is not in question, though the narrative as to who bears responsibility remains highly partisan.

Irrespective of who bears responsibility for the current state of the economy (the previous administration as well as the incumbent government must bear responsibility for flawed policies, politically motivated economic decisions and delays) the fact is that in a democracy while there is a confluence of objectives including a high growth rate, foreign exchange reserves at the very least sufficient to cover three months’ of imports, a trade surplus, a tax structure that is fair, equitable, non-anomalous and a revenue base that is adequate to cover government expenditure priorities — macroeconomic indicators where the Pakistan economy continues to suffer from serious lapses to this day — yet political parties by and large present their own distinct policies/path to achieve these objectives.

Disturbingly, the luxury of implementing such independent policies to achieve stated common objectives is no longer available to the eleven-party coalition government (nor was it available to its predecessor) given: (i) the critical economic imperative to ensure the success of the seventh review, currently stalled, in the 6 billion dollar Extended Fund Facility (EFF) programme of the International Monetary Fund (IMF); and (ii) lack of any leverage — be it due to changing geopolitical considerations or consistent failure to implement structural reforms agreed with multilaterals during the past four decades — that is not allowing Pakistan’s economic managers to renegotiate the terms of the EFF conditions already agreed, including the phasing out of harsh upfront conditions.

Without the success of the seventh review the government’s ability to borrow 35 to 36 billion dollars (with 21 billion dollars for interest and loan repayment as an when due and another 5 to 6 billion dollars for strengthening foreign exchange reserves that are less than 2 months of imports at present) the spectre of a further economic downswing looms large that would negatively impact on not only the government’s capacity to meet its expenditure, however trimmed it maybe, but also the quality of life of the public which is already severely compromised with massive load-shedding and a rate of inflation in excess of 19 percent.

And what has made the current situation worse than ever before is the union of economics and politics that has never ever been that stark in this hapless country before: lack of success in the IMF seventh review may trigger widespread demand for a caretaker set-up that, if past precedence is anything to go by, would lay the bulk of the onus of meeting the conditions on the general public instead and for early elections projected to cost the exchequer around 450 billion rupees.

Given that the government has been unable to disburse the budgeted amount for Public Sector Development Programme (PSDP) for the last quarter of the current year, mainly due to unfunded subsidies announced on 28 February this year, there is simply not enough in the kitty to release the money required for elections.

The coalition government has already taken the unpopular decision to end the subsidies which has raised the rate of inflation by around 6 percent; however, the Fund requires the government to implement other equally challenging policies that include: (i) increase in rates of personal income tax, which Finance Minister Ismail has reportedly opposed and instead supports the levy of a tax on windfall profits of some sectors, including banking sector which ideally would be a one-time levy; (ii) capital value tax on stock market transactions that the government is reluctant to impose as that would lead to alienation from the stock market that Pakistan finance ministers routinely call on for show of support; (iii) a massive decline in current expenditure that calls for serious sacrifices by the major recipients; (iv) elimination of circular debt projected to be 3 trillion rupees by the end of the current year that one hopes would not be entirely passed onto the consumers that includes renegotiating power contracts signed with the Chinese firms under the China Pakistan Economic Corridor; and (v) improved governance in all sectors designed to reduce rent costs.

The range and extent of the economic reforms required today would daunt any government, even one elected with a two-third majority. Surveys and past history, however, show that irrespective of optimistic projections by party leadership for the next elections, no single party would be able to muster a simple majority leave alone win a two-third majority — a voting trend evident for the past two to three decades.

At the same time, it is fairly obvious that the PTI is in no mood to share the blame for the current state of the economy or participate in a grand dialogue; thus the onus rests with the coalition government, which proactively sought the ouster of the PTI government and has to now accept the burden of walking the talk.

Copyright Business Recorder, 2022