EDITORIAL: Yesterday marked the country’s seventy-seventh Independence Day. While the honour to hoist the flag on Pakistan’s seventy-sixth birthday necessitated the prime minister to outstay the end of term of his government and parliament that was elected for five years, yet celebrations by the general public were largely muted due to the ongoing economic impasse that has spanned the tenure of the previous three economic team leaders: (i) Dr Hafeez Sheikh for signing off on an IMF (International Monetary Fund) programme in 2019 that was marked by a complete lack of empathy for the poor with a projected growth constriction (actual growth for the year was even lower than projected due to the onset of Covid-19), a discount rate linkage to consumer price index instead of core inflation as in the past (which was a more suitable measure) at 13 percent (with negative implications on private sector credit and employment) and a projected 13 percent inflation rate for the year; (ii) Shaukat Tarin for misreading the writing on the wall notably that the IMF was no longer willing to renegotiate the harsh upfront conditions based on successive governments failure to implement the structural reforms needed that would mitigate the need to go on a Fund programme for balance of payment support; this led to a delay in the sixth review which exacerbated the issues facing the economy in general and the poor and vulnerable in particular; and (iii) Ishaq Dar for making an untenable situation worse by controlling the rupee-dollar parity in defiance of the agreed IMF conditions (leading to appallingly low foreign exchange reserves and a 4 billion dollar decline in official remittance inflows) as well as raising current expenditure by a whopping 21 percent from what was budgeted (and approved by the Fund) for 2022-23.
Hammad Azhar appointed interim finance minister for less than a month each time did not negotiate with the Fund and therefore had little if any impact on the state of the economy, while Miftah Ismail (interim finance minister) appointed for the months when Ishaq Dar made himself unavailable due to his self-imposed five-year-long exile did engage with the Fund both times and did manage to de-control rupee dollar parity as per IMF recommendations in 2017-18 and in 2022-23.
What is extremely disturbing is that each successive economic team failed to implement the structural reforms required by multilateral lenders - particularly in the power sector (the lenders focus on full cost recovery to ensure the sector’s viability led to successive economic teams preferring to pass on the buck onto the hapless consumers in raising tariffs rather than supporting improvements in governance), tax system (the onus remains on indirect taxes whose incidence on the poor is greater than on the rich), and the haemorrhaging state-owned entities that require a trillion rupees of budgetary injections at present to stay afloat with appointments continuing to be based on nepotism with the Pakistan Democratic Movement (PDM) government reappointing their own favourites to many board of directors.
Large-scale manufacturing sector is struggling to cope with high input costs including a policy rate of 22 percent that accounts for negative 9.9 percent growth of the sector, leading to large-scale closures and fueling unemployment.
The numbers being pushed into poverty are mind-boggling and the government raised allocation for Benazir Income Support Programme from the revised estimates of last year of 408 billion rupees (after disbursing cash to the flood victims) to 466 billion rupees this year.
The budget for the current year indicates that the outgoing government did not grasp the importance of structural reforms as the only way forward if the country is not to default in years to come.
The conditions stipulated in the Stand By Arrangement (that is scheduled to end on 12 April 2024) are a continuation of the harsh upfront conditions of the now suspended 2019 Extended Fund Facility programme and without their implementation it is unlikely that the Fund will be willing to negotiate the next programme, which is critical to averting the threat of default in years to come; and it should have been understood that without a Fund programme friendly countries are also no longer willing to fund our governments’ profligate policies.
There is heavy reliance on pledged investment inflows from friendly countries today, as in the past, however while one would hope that these pledges bear fruit, unlike in the past, yet there is a need to vigorously pursue terms favourable to this country, unlike in the past, rather than presume that all dictated terms must be accepted as they represent the only available inflow of foreign investment.
An example is the flawed contractual agreements with the independent power producers (IPPs) from 1994 onwards till 2015 established under the China Pakistan Economic Corridor umbrella that have left the hapless consumers floundering to clear their bills today.
It is equally disturbing that the country’s birth anniversary was marked by a further deviation from the vision of the father of the nation Quaid-e-Azam of a constitutional democracy.
In a speech in London on 13 December 1946 the Quaid had stated, “Democracy is in the blood of Musalmaans…. (who) believe in fraternity, equality and liberty.” On 11 August 1947 in his address to the constituent assembly, he stated: “remember that you are now a Sovereign legislative body and you have got all the powers.
It, therefore, places on you the gravest responsibility as to how you should take your decisions. The first observation that I would like to make is this. You will no doubt agree with me that the first duty of a Government is to maintain law and order, so that the life, property and religious beliefs of its subjects are fully protected by the State.
The second thing that occurs to me is this. One of the biggest curses from which India is suffering — I do not say that other countries are free from it, but, I think, our condition is much worse — is bribery and corruption. (Hear, hear.) That really is a poison. We must put that down with an iron hand and I hope that you will take adequate measures as soon as it is possible for this Assembly to do so.”
The recent plethora of legislation passed by parliament has not only strengthened and formalized the hybrid system which violates the principles of constitutional democracy espoused by the father of the nation but, if past precedence is anything to go by, fails to achieve the objectives that may be close to the heart of stakeholders.
Copyright Business Recorder, 2023