Back to square one?

After an eventful night in Islamabad the country is back to square one. After three and half years’ rule of Pakistan Tehreek Insaf (PTI) the country is again being ruled by a coalition of over half a dozen political parties. They got elected with 174 votes where the simple majority is 172.

This is the biggest coalition that has come to power in Pakistan. The major parties in this coalition have been in power intermittently from 1988 to 2018 (except the Musharraf era from 2000 to 2008). The Two major parties, Pakistan Muslim League-Nawaz (PML-N) and Pakistan People’s Party (PPP), are each others’ sworn enemies except when they are faced with a third option. They had a brief stint in coalition in 2008 during Musharraf’s presidency.

From an economic policy perspective, however, the PTI (Pakistan Tehreek-e-Insaf) government had made no major decision that could be described as ‘disastrous’ for the economy except that they never highlighted the state of Pakistan’s economy when they assumed power in 2018.

PTI, being completely inexperienced and ignorant about the economic issues of the country, undertook a 100-day plan which was a disaster, as surgery was required at that time but was not done. The author met the then Prime Minister, Imran Khan (IK) on May 4, 2019 and informed him that the economy is in a very bad shape and there is no option except to go under an IMF (International Monetary Fund) programme.

It is relevant to point out that by that time the people in Pakistan, who are genuinely impatient, had already been disappointed by PTI’s performance and the government was repeatedly blamed for the bad shape of the economy which was not their fault but was the result of misrule from 1970 onwards. However, the public at large was not ready to accept this excuse and rightly so, thereafter, the PTI government never held the reins of the economy in its hands. The author repeatedly told the then Prime Minister that there is no possibility of introducing corrective policies in ‘phases’ because of a variety of reasons.

IK also became the victim of ‘status quo’ and mantras of ‘good governance’ without realising that in the economic field ‘mafias’ that operate in Pakistan have the capability to take anybody hostage once in power. The biggest mafia are the people dealing in the ‘cash economy’. They control the retail and wholesale trades, middlemen control trades in agriculture commodities, real estate, stock and currency markets.

This group has the ‘shutter down power’ were IK’s words, when the author as chairman Federal Board of Revenue (FBR) was faced with severe opposition for attempting to bring these people into documentation in September 2019. IK was actually compelled to yield by the political forces.

Consequently, the government failed to institute measures for documentation, although there was a complete plan for restructuring of FBR in October 2019. This plan however was shelved as this plan and the overall so-called ‘civil service reforms’ were lumped together. There is no point in repeating history, however, it has to be admitted that the government failed in this endeavor. It is, however, reiterated that the PTI government has not made any fundamental mistake on the economic policy side.

The question before us as a people is whether this weak coalition that has come into existence only to get PTI out of power will be able to undertake the primary corrections that are urgently required in Pakistan’s economic scenario. This job appears to be difficult.

Firstly, for the reason that both the major parties in power never had any policy for long-term economic growth; and secondly, time is not on their side being April 2022 with general elections due in 2023. The problems that are expected to be faced by the PML-led government on the economic side are ingrained in the set-up in which the party’s economic policy is rolled out. This is summarized as under:

1. The main political power base of the party is central Punjab and the big cities in Punjab represented by traders, wholesalers, small and medium sized industrialists that are most averse to any form of documentation of the economy and increase in the tax base. These are the people who introduced innumerable withholding taxes and ‘presumptive taxes’ on the excuse that they are not capable of doing any documented transaction, PML cannot afford to touch this group of people. There was a time when the Government of Pakistan had the economic space to accommodate these desires, however, in the present situation this would not be possible;

2. The PML-N government has been a big supporter of import-based economy. During the earlier regime of PML-N, there was minimal increase in the quantity of exports and the increase in GDP was mainly driven by various spheres of imported economy. This honeymoon which was possible at that time will not be available in the present state of Pakistan’s current account;

3. From 1992 to 2018 there was an effectively unregulated foreign exchange environment and exchange companies flourished. This was in line with the demands and desires of the unorganised business sector with a huge cash economy. This provided the political base for the party representing such people. After 2018 such liberties are no more available. Society that flourished on these dole-outs will face the crunch in the days to come;

4. The biggest credit or discredit of previous governments was ‘Energy Economics’ in the last over 35 years there has effectively been no change in any of the following ingredients of disaster for energy economics. These are:

a No decrease in line losses;

b No privatisation;

c No effective unbundling;

d No new hydel power projects;

e US dollar-based fixed return;

f Tariffs completely distorted with the cost of production;

g Subsidised price for petroleum;

h Circular subsidy, termed as circular debt is continuously increasing.

The power base of the present government is the biggest consumer of energy and a delay in the correction of the aforesaid actions is the only politically suited answer.

1. The current account status of Pakistan requires continuous support from the IMF. It is expected that conditions for the new government may be slightly accommodative than the past; however, in principle, the IMF will not be inclined to endorse any pro-people policy that is not commensurate with generally acceptable norms required for stabilisation of the economy.

2. The politically weak government will not be able to take any strong decision with respect to bleeding State-Owned Enterprises (SOEs).

3. Lastly, it has been the experience from 1988 to 2018 that there is no urge within the mind of these political parties to place Pakistan under any medium- and long-term economic platform or plan.

It is therefore expected that this new coalition government will not be able to effect any substantial correction in the state of economy of the country. It is not a question of competence or quality of government but of the strength and support behind the person who is responsible for carrying out correction and the political cost of that correction. This situation is not temporary.

It is not likely that any single party will be able to muster the support of over 200 seats in the National Assembly as a result of the upcoming general election. Accordingly, there will again be the same drama and ‘change’. What is, however, needed for Pakistan is a consensus on tough economic decisions and this does not seem to be possible in the National Assembly although we all agree that there is no other forum. The need, therefore, is for all stakeholders to realise the gravity of the situation that warrants that these 342 individuals combine to take the action that is required otherwise the possibility of a quasi constitutional intervention cannot be ruled out.

Copyright Business Recorder, 2022