Economic fallout of political turmoil

The government of Prime Minister Yousuf Raza Gilani has undergone a dramatic status change: from a majority coalition government to a minority government.
The government's favoured response to the current political impasse with the departure of the MQM from the coalition at the Centre is explicit: the President has unequivocally made a statement of support for the beleaguered Prime Minister and is currently focused on negotiating with the erstwhile coalition member MQM to return to the fold, while the Prime Minister has been seeking support from parties headquartered in Punjab, namely the PML (N) and the PML (Q).
Not so straightforward is the response of the opposition parties now clearly in the majority in the parliament. However, there is one premise that has been reinforced yet another time: no one else appears to be willing to take on the job of Prime Minister or run the government at this point in time.
There is also unanimity between the ideologically distinct parties in the opposition that mismanagement, nepotism and corruption have peaked in the past two and three-quarter years.
The agreement with the International Monetary Fund (IMF) is also the subject of much criticism by parties other than the PPP, especially with reference to the withdrawal of subsidies on petroleum end products, which has led to escalation in the price of utilities and petroleum products during the past three years - a policy expected to continue for the foreseeable future.
Given the political turmoil amid impasse, the economic decisions of the government would no doubt be revisited, especially with respect to withdrawing the recent hefty rise in the price of petroleum end products. Thus a revisit is expected to be based not on economic but on political compulsions. In this context, it is relevant to distinguish between those policies that are in the country's long-term economic interests and those that reflect poor governance.
Thus while the government's decision to withdraw the recent rise in price of petroleum products must be considered unsound from an economic perspective, as the rise was premised on the fact that the international price of oil is rising, the government's failure to provide resources to ensure that the ongoing 17 hydel projects are completed on time, as well as its insistence on supporting the costlier and controversial rental power projects in spite of the conclusions of the third party audit to the contrary, require an urgent revisit.
It is also economically viable to support an increase in the tax to Gross Domestic Product ratio. However, it is critical to focus on the wealthy who are so far exempt - a group that would include the country's rich rural landlords, heavily represented in our national and provincial parliaments. Reliance on a value added tax (be it in the sales tax or excise duty mode or be it through the proposed Reformed General Sales Tax) during the ongoing global and domestic recession may not prove effective in enhancing tax collections.
Nepotism in appointments and corruption through violation of public procurement rules needs to be tackled by empowering an autonomous body like the Auditor General of Pakistan (AGP) and not the government controlled FIA or the National Accountability Bureau. To show to international donors as well as the opposition parties and the public that the government is intent on eliminating corruption and nepotism, there is a need to strengthen the AGP and at the same time strengthen the prosecution branch to ensure that the case against the accused is well-argued and strong. The onus of proof does not rest with the courts, the government must acknowledge.
The marriage of politics and economics is fairly well-established and one can only urge the parliamentarians to resolve all outstanding issues in the country's economic interests as opposed to their own sectional party interests. The current political impasse has already led to a decline in the index by 173 points and the rupee value also declined though its cause is being given as the rising demand by importers.
In addition, the country's economic performance in 2010 is expected to be poor and place us, in terms of key macroeconomic indicators, even below what the government inherited in 2008. Sufficient to indicate this is the fact that the fiscal deficit in 2008 was 7.4 percent while it is expected to be around 7.5 percent this year. In short, the country's economy certainly does not have the luxury of time and it is imperative for the politicians to recognise this and act accordingly.