Economic costs of political instability

Political uncertainty has accentuated manifold in the country. Debate within political parties has been triggered in the aftermath of the political fallout of the current impasse between the PPP-led government, the judiciary and the establishment. Determining the appropriate action is currently going on in the core decision-making committees of various political parties, including the PPP's Central Executive Committee, the MQM's co-ordination committee, the PML (N), the ANP, the PML (Q) and the Tehrik-e-Insaf. However, as always, ignored is the fallout of political uncertainty on the economy. We would like to draw the attention of our legislatures (national and provincial) as well as the decision-making bodies of all political parties, within and outside the current parliament, to the economic ground realities that the country is currently facing. The rupee is in a free fall in relation to major world currencies. From a bit above 60 rupees to the dollar in 2008 it is now trading at over 90 rupees to the dollar. The State Bank recently intervened and took action against two banks while it warned others not to bet against the rupee. Economists would no doubt point out the obvious: the economic bottlenecks need to be urgently tackled - bottlenecks sourced partly to corruption in public sector entities (PSEs) associated with senior appointments based on nepotism rather than merit and the resulting mismanagement that has weakened the PSEs, as acknowledged by the President, and crumpled them as assessed by independent analysts citing large frequent bailout packages. Other key macroeconomic indicators suggest that remedial measures must be implemented on an emergent basis and which require a consensus amongst all political parties. Only two indicators present an optimistic picture. First, home remittances which, according to the Economic Survey 2010-11, have risen due to transformation of the former informal transfer channels to formal channels as well as contributions for flood relief - factors that are unlikely to come into play again this year leading to a rise in remittance income from last year. Second, exports rose last year largely due to the textile sector which benefited from an inordinate spike in prices - a factor exogenous to our economy and not attributable to government policy action. Rice exports too are likely to witness an upsurge this year, mainly because of the devastating floods in Thailand or, in other words, the international supply position as opposed to the domestic policy that would account for a rise in rice exports. So what is the solution? Granted that the present government's economic policies require an urgent revisit and its inability to implement reforms that are reportedly routinely proposed by the Ministry of Finance and the State Bank of Pakistan as indicated in the Letters of Intent submitted to the International Monetary Fund are a major obstacle to the current economic impasse. The question is, what is the right forum to deal with the prevailing economic issues? The Parliament is sovereign, is a battle cry of the legislators to deal with the ongoing political impasse. However it is certainly the right forum to deal with the economic malaise that besets the economy. That the Parliament has not taken the wishes of the people it purports to represent into consideration with respect to the economy is fairly evident. This is in spite of periodic condemnation by coalition partners and the opposition of the government's decision to raise prices of petroleum products as well as check the prices of utilities and kitchen items. The rationale behind this assessment is the relative ease with which this government has passed its budgets which are without doubt: (i) unrealistic in terms of allocations for development as well as non-development expenditure (the former is massively slashed at the end of the year and the latter is massively raised at the end) leading to ever-rising budget deficits; (ii) the State Bank continues to operate under the directions of the Ministry of Finance, though it does periodically express concerns, for example urging the Ministry of Finance to get its fiscal house in order in its latest report; (iii) failure to improve governance in sectors/ministries/autonomous departments while raising tariff of service providers, which is understandably not acceptable to the public; (iv) not implementing austerity measures for which the blueprint has been approved by the cabinet already; and (vi) removing tax exemptions allowed to members of the assemblies and other pressure groups. The time for action is now, but unfortunately, all eyes are turned towards the drama that is unfolding in the political arena and the economy continues to take a backseat. Copyright Business Recorder, 2012