EDITORIAL: The economic fallout of the ongoing political impasse is visibly getting more severe with each passing day. There is a consensus on the appalling state of the economy though the Pakistan Tehreek-e-Insaf (PTI) and the Pakistan Democratic Movement (PDM) hold each other responsible for the existing state.
The narrative of neither party is either accurate or compelling. PTI cites the relatively higher growth rate, lower inflation, higher remittance inflows and higher large-scale manufacturing growth last year to claim that if brought back to power it has the capacity to turn the economy around.
Last year’s favourable assessment is challengeable on the grounds that by easing monetary and fiscal policies and providing unfunded and untargeted subsidy on petroleum and electricity, decisions violative of the agreement with the International Monetary Fund, the import bill of nearly 80 billion dollars played havoc with the external account that contributed to the current state of affairs and the PTI government cannot absolve itself from responsibility. And what is most telling is that there was little development and heavier than ever reliance on borrowing – both domestically and internationally.
The coalition government’s narrative is, that it is taking economically challenging decisions at a heavy political cost. This statement is clearly inaccurate on two counts. First and foremost, the decision to reverse the unfunded subsidy given by the then Prime Minister, Imran Khan, was not reversed till 28 May and 3 June, a good two to three weeks more than its implementation period during the previous administration.
The fact that the amended National Accountability Ordinance was passed by the National Assembly on 27 May, a day before the unfunded subsidy was reversed, strengthens PTI’s claim that the 11-party alliance is more focused on giving a clean chit to its leaders.
In addition, the recent economic decisions are violative of the IMF agreement signed in August this year when Miftah Ismail was the Finance Minister – decisions that are not only violative of the agreement but have absolutely no economic merit and include: (i) the widening differential between the interbank and the open market rate, which is negatively impacting on remittance inflows, a desired form of foreign exchange earnings, through legal channels and on the foreign exchange reserves.
This point is reportedly being raised by the IMF but so far with no effect; (ii) extending a 100 billion rupee unfunded electricity subsidy to exporters by providing them the rate of 19.99 rupee per unit, against the nearly 40 rupees per unit paid by other non-vulnerable consumers premised on the economically flawed logic that exports would rise.
This decision indicates little awareness of the negative fallout of a controlled rupee-dollar parity on exports and the grave political implications as this is a regressive measure that is not likely to be acceptable to the taxpayers given the 33 million flood victims. And needless to add is a policy measure that has already generated IMF concern; and (iii) the heavy reliance on external borrowing in the current year, 40 billion dollars, needs to be slashed by the amount that is earmarked as budget support which should entail a massive reduction in the current expenditure rather than capping development expenditure.
The country needs an economic team that has the capacity to think out of the box, take decisions that are economically sound, undertake reforms starting with the energy and tax sectors that have been pledged with the objective of achieving a stable and sustainable economy in the medium term and improve governance in all autonomous, semi-autonomous and state institutions to minimise the burden on the taxpayers.
One hopes that better sense will prevail and the economic team leaders begin to take economically sound decisions for without the immediate implementation of these politically challenging measures the economy will go further into a tailspin, and needless to add the situation will further deteriorate making recovery even more painful.
Copyright Business Recorder, 2022