EDITORIAL: Leading lights of the PML-N (Pakistan Muslim League-Nawaz), including Federal Finance Minister Ishaq Dar, have repeatedly urged all political parties to agree to a ‘charter of economy’ on the same lines as ‘the charter of democracy’ signed on 14 May 2006 between Benazir Bhutto and Nawaz Sharif during Gen Musharraf’s rule at a time when both leaders were in exile. This was taken up by Prime Minister Shehbaz Sharif as the leader of the opposition during the Khan administration and has reportedly been a major agenda item in recent meetings between Dar and President Arif Alvi.
There is no doubt that the country’s economy is extremely fragile at this time and agreeing on a charter of objectives, albeit even if no written agreement is reached, is not going to present any challenge irrespective of political discord. These objectives include high growth, focus on development outlay instead of on current expenditure, power sector reforms and reducing reliance on indirect taxes, which are regressive in nature and move towards widening the tax net and, last but not least, reducing inflation and implementing policies that would fuel employment opportunities.
At the same time, informed decisions are required that would limit the elite capture of our resources through effective monetary and fiscal policies and with the country grappling with the aftermath of the floods with more than 33 million affected, priorities must shift away from the pro-elite policies and towards the increasing number of poor and the vulnerable.
No independent economist can support the economic policies that are currently in place. Take the widening differential between the interbank and open market rupee-dollar parity that has compromised the capacity of the importers of essential items and the repatriation of profits by foreign companies, including the ticket fare sales of foreign airline companies, thereby shriveling the availability of dollars in the economy. And granted that the Afghan crisis is responsible for dollar outflows from our markets, yet this is not the only reason.
In addition this differential in the rate is contracting remittance inflows as overseas Pakistanis are reverting to the hundi/hawala system again, a practice abandoned during the pandemic due to a global lockdown.
The government needs reminding that remittance inflows were 29.4 billion dollars last fiscal year and while former Prime Minister Imran Khan claims this as his personal achievement premised on his popularity with the overseas Pakistanis yet this large inflow was also due to the fact that the interbank and open market rates did not diverge significantly during the previous tenure; and significantly did not diverge as much during the time Miftah Ismail of PML-N was the finance minister. Thus the current untenable situation is due to a perceived policy of exchange rate manipulation and cannot be attributed entirely to the opposition’s warnings of impending default or their criticism of the handling of the economy.
It is also relevant to note that Pakistan has had three de facto finance ministers since 16 April 2021: Shaukat Tarin (16 April 2021 to 10 April 2022), Miftah Ismail (11 April 2022 to 27 September 2022) and Ishaq Dar (27 September 2022 to date). All three massively misjudged their capacity to get the International Monetary Fund (IMF) to agree to phasing out the harsh upfront conditions that were agreed by the Hafeez Sheikh-Reza Baqir economic team leaders on 12 May 2019 — a mis-judgement that delayed the success of the mandatory quarterly reviews and thereby delayed the disbursement of the tranches on which rollovers by friendly countries as well as pledged new loans estimated at around 4.2 billion dollars are dependent.
The scheduled ninth review talks have yet to begin and the lacunae include not only the monetary and exchange rate policy in practice today but also the decision to provide exporters electricity at the rate of 19.99 rupees per unit, an unfunded subsidy of 100 billion rupees, which has already been labelled as a regressive measure by the IMF (International Monetary Fund), and an agricultural package consisting of over a trillion rupees of credit — a highly inflationary policy today, given the output contraction due to the floods and the contractionary policies expected if the Fund review is successful, and raises the possibility of further elite capture of this credit amount based on the lack of collateral with the poor and subsistence farmers.
In democracies, a charter of objectives is fairly easy to achieve; however, each political party has its own set of unique economic policies to achieve these salutary goals and in Pakistan’s case today, much needs to change and reforms implemented to reach a level of comfort for the existing cabinet members, opposition parties, domestic and international stakeholders and, last but not least, the hapless people of this country.
Copyright Business Recorder, 2022
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