Politics over economy

“As I have been arguing for a long time now, there is a real need not simply for a political economy of wealth but also for a political economy of speed.” Like in 2022, politics will probably take up much of Pakistan’s time and attention in 2023.

The country’s turn to political instability last spring did not end with a dramatic no-confidence vote in parliament last April that ousted then-Pakistani Prime Minister Imran Khan from office.

Since then, polarization and instability have only grown. Nevertheless, Pakistan’s political unrest is also keeping it from addressing its true problem, which is an extremely fragmented and crumbling economy.

The crisis in Ukraine has increased the prices of food and fuel while Pakistan’s currency is in a free fall, plunging approximately 65 percent in the previous year, adding to the government’s incompetence.

Because of the crippling inflation and the critically low level of foreign reserves, which is only enough to cover one month’s worth of imports, the possibility of default rises.

Pakistan has economic crises every few years as a result of its economy’s imbalance between production and consumption, which makes it dependent on external debt. As the debt burden grows and more payments are needed, each problem gets worse.

The statistics are worrisome this time. According to estimates, there is $270 billion in total governmental debt, or almost 78 percent of GDP. With a debt of almost $30 billion and an additional $1.1 billion payable for electricity purchases by Chinese companies; China is Pakistan’s largest bilateral creditor.

According to economist Dr Hafiz Pasha, last year’s floods, which cost more than $30 billion in damages and had a significant negative impact on agriculture and industrial production, could limit GDP growth this year to 1.5%.

He also predicted that unemployment would reach 10 percent, or as many as 8 million people out of work, by the end of the current fiscal year in June. Central bank’s current policy rate is the highest in Asia at 21 percent. The combination of all these factors has spelled perhaps the greatest economic challenge Pakistan has ever seen.

There is no quick remedy for Sharif’s administration. The disbursement of a $1.1 billion loan tranche from the International Monetary Fund (IMF) is currently on hold as Islamabad has resisted the IMF’s requirements.

But, the government has been bogged down in political maneuvering. In exchange for any bailout, the International Monetary Fund (IMF) like to see increased tax revenue and reduced energy subsidies, but Sharif has thus far rejected these demands because doing otherwise would be politically disastrous.

With assistance from the IMF and loans from friendly states, particularly Saudi Arabia and the UAE, Pakistan may be able to temporarily escape default. Yet as the issues worsen under the current impasse, even longtime allies are reconsid ering their previous generosity.

“All of your strongest pals agree that you must assist yourself. They are tired of the elites in China, Saudi Arabia, and the United Arab Emirates,” said Kamal Alam, a senior fellow at the South Asia Centre of the Atlantic Council. People are becoming aware of the fact that “they acquire Saudi money to pay off China, then get UAE money to pay off the Saudis.”

The once-reliable source of funding, Saudi Arabia, has made it clear that no additional aid would be given. Mohammed-Al-Jadaan, the Saudi finance minister, spelled out the new strategy in a speech at the World Economic Forum this year in Davos, Switzerland.

He said “direct grants and deposits without conditions” are a thing of the past. “We are collaborating with international organizations to formally state that improvements are required. We charge our citizens taxes. We anticipate that others will follow suit and make every effort.

We want to help, but we want you also to do your part.” According to Reuters, Dar has been pushing for $5 billion while the IMF is asking for commitments of up to $7 billion. While some of the loans China has provided are beneficial in the near term, they only serve to increase the country’s debt load.

Dar and Sharif made remarks last week that seemed to relate the IMF deal to the security of Pakistan’s nuclear weapons, casting doubt on its inclusion in the bailout requirements and further clouding the situation. The IMF representative for Pakistan, Esther Perez Luiz, refuted the connection in a statement after it had been raised frequently in recent months by Pakistani pundits.

Last but not least, all the pressing economic concerns are being overshadowed by arrests, warrants, and animosity. What is happening right now is severe, even in the context of Pakistan’s cataclysmic political and economic upheaval. Never has it been this horrible.

According to the available information, it appears that the government is attempting to postpone the polls because, if a free and fair election were to take place, Imran Khan would likely win.

Copyright Business Recorder, 2023