The prime minister’s decision to do whatever was needed to complete the 9th review of the stalled IMF programme was in fact a tacit acceptance of the complete failure of Finance Minister Ishaq Dar’s policy prescription – defying the Fund to sprinkle subsidies and cut taxes like his predecessors, even try to control the rupee all over again, only to fail.
Clearly the PM, for one, no longer believes that Dar knows “how to negotiate with IMF”, or that he’ll “teach rating agencies a lesson”, and all that. And all he has achieved so far, just like Hafeez Sheikh and Shaukat Tarin before him, is waste time before bending to the IMF and agreeing to harsher conditions than the ones they disregarded in the first place.
Yet instead of showing Dar the door, or sending him back to intensive care in London where he can conveniently evade cases against him, PML-N (Pakistan Muslim League-Nawaz) has decided to throw Miftah Ismail out of the party.
Given that Miftah successfully negotiated not one but two reviews with the IMF, making him the only finance minister to do so in the last couple of years, perhaps it would have been wiser to politely request him to return to the ministry to head the talks at this fragile moment. But Dar has one qualification that even a Wharton PhD could not get Miftah – family ties with the party boss – so guess who remains firmly in place and who gets thrown under the bus?
You can also be sure that this turnaround in the PM’s position would not have come if the Saudis hadn’t snubbed Pakistan’s latest request for more money. “We used to give direct grants and deposits without any strings attached and we are changing that,” Saudi Finance Minister Mohammad al-Jadaan said at Davos just last week. “We need to see reforms.”
The Saudis have said this before, though more politely, and now it is clear that Pakistan will not get the money it needs to avoid default unless it is back on the IMF program; and that means finally accepting the upfront conditions that both PTI (Pakistan Tehreek e Insaf) and PDM (Pakistan Democratic Movement) administrations tried to sidestep.
That is why the PM may well have spoken prophetic words when he said that the “PDM alliance was ready to sacrifice its political career for the sake of the country.”
Usually the incumbent opts for expansionary fiscal and monetary policies in an election year, regardless of the long-term cost to the country, but this time it’ll have no choice but to withdraw electricity subsidies, rationalise gas tariffs in line with international price, and give up its obsession with controlling the rupee.
That will turn inflation into hyperinflation, shut down businesses, alienate people and surely deliver a defeat at the election.
But whenever PTI comes back to power, which seems the most likely scenario whenever elections are held, it will face the same problems. Pakistani political parties hate reform because it burns a lot of political capital and takes a long time to bear fruit, because the economy is so wrecked that it needs a complete overhaul, while they must go back to fetch votes every five years.
That’s why the blueprint that emerged over the last two decades or so involved high-visibility projects like motorways and power plants, which tend to impress people, and taking the begging bowl to friendly countries to beef up reserves around election time.
But successive administrations had kicked this can so far down the road that it was ready to fall over the edge around midway through PTI’s time in office, and then the army chief had to make the rounds as well to get the job done.
Now, however, even that card has stopped working. And initiating and sticking to deep structural reforms that will cause a lot of trauma before there’s any significant increase in production, employment and export revenue is the only way to get enough money in the bank to rule out a snap sovereign default.
The harsh ‘no’ from Riyadh has no doubt jolted Pakistan’s rulers and establishment alike, but it has come too late from the people’s point of view. The main reason Pakistan’s economy has collapsed so dramatically is the ruling elite’s insatiable lust for the riches and privileges of power.
And as they squeezed the state’s resources to build sugar mills and buy luxury real estate abroad for themselves, they subjected hundreds of millions of ordinary Pakistanis to one of the most unfair social structures in the world.
And even now they are forced to do the right thing only because nobody trusts them and everybody wants to see some action before any money is released.
For better or worse, it has taken a snub from Saudi Arabia to shake Pakistan’s rulers out of their slumber.
Copyright Business Recorder, 2023
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