The speed (if not the accuracy) with which those ‘economic bombs’ (in media-speak) are being dropped these days by a politically-accountable government should make a cold-blooded technocrat envious. The Shehbaz government, now two-and-a-half-month-old, was initially declared much guilty of delaying difficult economic decisions. Now critics may take an about-turn and label the current regime ruthless.
Hardly a few days go by these days and there it is: yet another tough economic measure being trotted out in full public view. The weekend decision to impose 10 percent super-tax on more than a dozen large industries was another big one – this time asking wealthy industrialists to sacrifice a portion of their profits, share the masses’ pain, and help the state meet its obligations. In the days that fall between such hugely-consequential announcements, cabinet ministers restrict themselves to plainly explaining an increasingly-demoralized public how much harder it is going to get before some reprieve is earned.
Considering that agonizing decisions vis-à-vis administered prices (fuel, utilities, etc.) and fiscal space (e.g. higher collections under income tax) are gradually being cleared out of the way, and noticing that the government is telling it to the public like it is (though one may disagree with the prescriptions), does this suggest that the new government has finally found its feet amid the chaos? Will this government be able to stay until its constitutional expiry in August 2023? Is some semblance of political stability finally here?
The assuredness with which the coalition government is now handling economy is a far cry from the paralysis seen in the first month of their tenure. For several weeks at first, the PML-N (the leading party in this multi-party coalition) wasn’t willing to raise fuel prices, as doing so direly affected its political capital. It was even ready to cut its electoral losses and go home. Now its leaders are saying that the ‘state’ comes before politics. Obviously, something has changed, making way for such political assertiveness.
But is this newfound confidence sustainable, considering that the regulated prices of petrol, diesel, electricity and gas are to further go up and power outages and gas crisis are likely to worsen over the coming months? An assessment of recent developments indicates that this brave new face may have to do with politics as much as economy.
On the political front, the terrain seems less rough that it was a month ago. PTI has potent organizing power, but it is not much of a threat right now, especially during the difficult summer heat. Thus far, coalition partners also seem to be firmly in place. Moreover, Election Commission is not ready yet with its electoral homework. Most importantly, there exists no economic case for a change in government, just as there was none 12 weeks ago. Therefore, an early election, although plausible, is a low-likelihood event.
There are also some economic green-shoots that have lately become visible, suggesting the solvency crisis has been averted (albeit the proverbial “can” has been kicked down the boulevard, as is usually the case). For instance, some of the anticipated debt inflows are now in the bag (especially from China). With the IMF now almost done with this round of strictly imposing its front-loaded measures, the approval process at the Fund (to clear the pending seventh review) is expected to kick in soon and yield the goods.
The task ahead for Shehbaz government is to ensure that external cash flows do not undergo a serious mismatch in coming months. It’s about negotiating and arranging timely availability of anticipated foreign debt inflows from multilateral, bilateral and commercial lenders. Over $36 billion in forex are required to fully meet the expected external financing requirements for the next fiscal, without further draining the reserves and bleeding the currency. Lower import bill would help, but it’s not a certainty. In short, the green shoots are there, but they need quite a bit of tending and least amount of adverse exposure.
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