The Country Director of the World Bank, Patchamuthu Illamgovan, stated that problems associated with Pakistan's economy, the current account deficit in particular, have resurfaced due to lack of a political consensus. He pointed out that Pakistan did well during the first three years of the PML-N government with Gross Domestic Product soaring but added that during the last 12 months external problems have resurfaced. There is little doubt that political uncertainty has played a negative role on the economy subsequent to the Panama Papers verdict of 28 July 2017 that not only disqualified the then sitting prime minister Nawaz Sharif but also, by several accounts, led to Finance Minister Ishaq Dar becoming non-functional. However, the PML-N remains in power in the centre with reports indicating that Nawaz Sharif's hand-picked successor Shahid Khaqan Abbasi and the rest of the cabinet routinely seek his advice on matters relating to the economy.
The only economic policy that has been amended after the Abbasi-led administration was sworn in on 1 August 2017 was to allow the rupee to depreciate prompting the International Monetary Fund (IMF) in a post-programme mission dated 5 to 14 December 2017 to state that "the recent move by the State Bank of Pakistan to allow adjustment of the exchange rate is welcome, and continued exchange rate flexibility will be important in the period ahead." The Fund further noted that the "positive trend" - reference is no doubt to the Fund's statement that economic growth has been accelerating and inflation remains subdued - "will require strengthening the economy's resilience with greater exchange rate flexibility, fiscal discipline and an adequately tight monetary policy stance." In short, the Fund reckons that the rupee remains overvalued and more flexibility is required to strengthen the resilience of the economy - resilience defined as a narrowing of the trade deficit which has reached alarming levels. The Abbasi-led administration did announce the extension of the export incentive package to be paid for by the imposition of regulatory import duties; unfortunately some influential industries compelled the government to withdraw import duties on some items which has raised issues of funding for the export package.
Political uncertainty is a natural outcome of an imminent election and this may be an additional factor that account for the PML-N administration hesitating from implementing the necessary politically challenging reforms. But Business Recorder has consistently pointed out that: (i) there were serious design flaws in the IMF's three-year Extended Fund Facility particularly with respect to the focus on total revenue collection rather than on reforming the tax structure to render it equitable, fair and non-anomalous; (ii) numerous waivers every quarter by the Fund led the government to drag its feet in implementing agreed structural time-bound benchmarks reforms in letter and spirit. These reforms ranged from granting autonomy to the State Bank of Pakistan to implementing governance reforms particularly with respect to the energy sector which accounts for the IMF stating in December 2017 that serious governance issues continue to prevail in the power sector irrespective of the considerable rise in generation capacity with the resurfacing of the circular debt, poor performing distribution network; and (iii) identifying a problem, notably that our foreign exchange reserves are debt enhancing and the rupee overvalued yet not making the resolution of these problems time-bound structural benchmarks. This clearly accounts for our eroding foreign exchange reserves and a rising current account deficit.
To conclude, there is considerable evidence today of political uncertainty in the country but, at the same time, the party in power has not changed for the past four-and-a-half years with the economic policies remaining more or less the same - policies that do require to be changed on an emergent basis as they were flawed to start off with. That unfortunately is not happening.