Time is running out

Pakistan is entering a near impossible situation. The country has probably never seen such weak political and economic conditions all at the same time. The government is a coalition of a number of parties, and they fear political backlash of unpopular (but much needed) economic decisions. Unfortunately, there is no luxury of time. Forex reserves are dwindling. There is no respite to global commodity prices. It’s a matter of weeks (not months) before the economy can no longer survive on its own.

All lenders are eying IMF’s (International Monetary Fund’s) nod before making firm commitments, and the IMF wants adjustment in energy pricing before staff level talks can begin. On the other hand, the government needs to bring coalition partners on board and desires to weaken IK’s popularity before undertaking these unpopular adjustments. All these cannot happen at once. The government must swallow the bitter pill.

The conditions today are difficult than what they were back in 2018. The new government at the time had a fresh electoral mandate and forex reserves buffers wasn’t as thin. Moreover, global commodity prices were not in a super cycle as they are today. Eventually, the government went to the IMF and had a deal. Moreover, the establishment and government were on the same page. The coalition government wasn’t as tenuous as it is today. And opposition didn’t have such strong teeth, as is the case today.

The objective of the PDM (Pakistan Democratic Movement) to form a new government was to oust Imran. The stated goal is achieved. Coalition partners such as PPP are not as interested in the performance of this government. Thus, they are not prepared to support unpopular decisions.

The buck stops with the PML-N leadership. Clearly, the architects of vote-of no-confidence move miscalculated. They may have had appreciation for tough economic conditions, but didn’t anticipate the backlash they had to face. It is not the popularity of IK, but the public outburst that is primarily fueling the resentment against the incumbents. That further hampers their ability to take difficult decisions.

There is no time to do politics. There is no time to put IK on the backfoot. There is no time to waste. The criticism against the PTI led government was that it was a ‘’selected’’ and incompetent one. One of the main objections was that it was not able to negotiate well with the IMF. It faced criticism for not dealing well with the energy mess such as failing to increasing the tariffs and petroleum prices. Now Sirs, you are in power. Please demonstrate competency by fixing the mess and earn public’s trust.

The import bill is growing out of control. The fiscal deficit is unsustainable. How can a weak government have the luxury to run large subsidies? The argument is that the PTI government has left landmines for the incumbents. Landmines are usually laid when the government is completing its five years (like it happened in 2008 and 2018).

PTI decided to freeze the petroleum prices on 28th Feb 2022. There was no (or little subsidy) at that time. On 8th March, VONC was presented. The subsidy increased to Rs 26-35/ liter on 15th March. And by next revision on 1st April, IK was a lame duck, and the subsidy had grown to Rs24-41/liter.

Then by 15th April, the new government was already in place and the subsidy had risen to Rs21-51/liter while there was no change in the pricing. Now the subsidy is running at Rs30-73/liter with no change. How can this be a landmine laid by PTI? The highest slippages have taken place in the last one month alone.

Unfortunately, no substantive economic decisions have been taken by the new the government yet. There is no decision on the new SBP (State Bank of Pakistan) governor. The petroleum pricing revision is pending. Time is running out fast. Pakistan’s food and energy import bill (including coal and LNG) has crossed goods’ exports. This is not sustainable. Actions must be taken soon.

It’s time either to act now or wait for the disaster. Saudi Arabia has made it crystal clear that there is no support without bringing the IMF on board. The UAE has a similar response. China is asking for the same. The World Bank and Asian Development Banks always wait for the IMF’s nod in days of low SBP forex reserves (less than three months cover). Even China-led Asian Infrastructure Investment bank (AIIB) is not ready to help without the IMF. All the roads lead to the IMF. Act now without any further loss of time.

Copyright Business Recorder, 2022