The world is going through a rough economic patch. The commodity supercycle is bringing energy importing countries under tremendous financial stress. Some have defaulted (Sri Lanka, Argentina, etc.), and others face difficulties in financing imports and managing debt servicing. Like Egypt, Nigeria, Nepal, and others, Pakistan’s economy is on the brink. Where countries are rationing demand (Nigeria is stopping domestic air flights), Pakistan’s government is not only indecisive on urgent matters but also importing expensive fuel to ensure full supply. It is not the style of a country going left, right, and center for immediate external financing.
The country is paying a high cost for the recent untimely political move. Economic decision-making has been at a standstill for the past two months. The new government is weak on many fronts. There is a solid public resentment. And the coalition partners are not allies. The finance team should have the proper signal. And someone must set the direction towards stability.
On the ground, the finance minister shows an apparent inclination towards reducing subsidies on petroleum through increasing pricing while letting the SBP use its monetary and exchange rate tools to curb imports and manage inflation. On the other hand, Miftah is clear-headed about reviving the extended IMF programme. He understands that all the different financing options have dried out without getting back on the IMF’s track. This is giving some confidence to the markets.
However, PMLN’s senior economic leadership from London is giving an altogether different road map. Ishaq Dar is advocating negotiating a new programme with the IMF on relatively easier terms. He is not in for increasing petroleum prices. Instead, he desires to control the central bank by appreciating currency and lowering interest rates and seems to be oblivious to the ground realities while reminiscing (when oil prices were low, and the current account deficit was manageable at the time they entered the IMF programme in 2013) from his cozy apartment in London. He doesn’t realize how painful what he left behind in 2018 was. He needs to understand that the challenge in 2022 is serious.
He is underestimating the situation on the ground and undermining the writ of the current finance minister. Dar is giving the impression that his views do not align with those sitting in Islamabad. Then the talk of the town is that Dar is making critical decisions in the Q block. These are not good signs. The power should reside with those at the helm, while those sitting outside should refrain from taking an opposing view of the government. This makes the government weaker and the situation grimmer.