It’s just too late

It’s impossible to reach the state of maximum uncertainty in Pakistan. Two caretaker provincial governments functioning well beyond their mandate — and still no elections in sight as even the supreme court looks on helplessly — and a general election that could or could not take place in October have already pushed the country well into (constitutionally) uncharted territory.

Now, there’s a good chance that the budget also suffers a similar fate. Just days before it’s to be presented, the press is still wondering if it will be enough to unlock the IMF bailout program; or if the government even intends to wait for the Fund any longer.

Prime Minister Shehbaz Sharif told international media in Turkey that he’d asked the finance ministry to prepare the budget “in line with IMF’s demands”; to ensure “there is no violation of parameters” set by the Fund.

But just two days ago the finance minister, representing Nawaz Sharif’s old guard in the ruling party, assured everyone of a “pro-investment, people welfare-oriented and business-friendly” budget and sparked a stock market rally. Now what should the market expect once it’s digested the prospect of delicious tax relief on inter-corporate dividends that’s been pushing it higher the last few days?

This is PML-N’s latest dilemma, which has been a long time coming. Dar’s lobby knows only too well, especially after the 2018 experience, that even the typical, expansionary, election-year budget doesn’t always do the job. And walking into a general election right after an austere budget that forces painful structural adjustment and makes people’s lives miserable for the greater good would be a bad option in the best of times.

Yet here they are, already having burnt their political capital just to meet IMF’s demands for a tranche that still hasn’t come. So, from Dar’s point of view, might as well forfeit the election right now if it’s going to be an IMF budget.

So what does he do? Abandoning the Fund and lacing the budget with subsidies and tax breaks, winning hearts and votes, will surely force default in the next fiscal. So, there’s not much to come back to even if the trick works.

One the other hand, sticking to the IMF and continuing with its “upfront conditions” is sure to lose the election. And even then there’s no guarantee that the IMF would release the rest of the money without asking for even more concessions; if the last 6-9 months are anything to go by.

Damned if he does, damned if he doesn’t. Yet he must do something.

Could we be in for a worse repeat of last year, when Shaukat Tarin threw the IMF rulebook out the window and presented a very expansionary budget to revitalise PTI’s dwindling fortunes, only to roll everything back with a mini-budget not much later? Since we are still sharing budget proposals with the IMF, even this close to the announcement, what if it keeps saying no and this uncertainty also lingers?

Buried deep in this government-IMF back and forth are two very cruel facts. One, the people of Pakistan, already burdened with lowest growth in years, highest unemployment in decades and highest inflation ever, lose either way.

Give them a lollipop of a budget and soon they’ll be suffering even more as all donors cut ties completely and the country tumbles into default. Or give them an IMF budget and make them line up as cannon fodder for the structural adjustment that always only hurts the common man.

And two, these so-called reforms are no longer even possible. We’ve needed all sorts of reform for years, after all, including tax reforms, electoral reforms, judicial reforms, SOE reforms, civil service reforms and, above all, economic reforms. But the time to get the ball rolling on crucial reforms, with or without the Fund, is long gone.

Now, doing it will not only cut subsidies that are desperately needed at the bottom of the food chain but also require extensive budgetary allocations of its own.

And when both multilateral lenders and bilateral donors, including time-tested friends, are shying away from giving any money, even to avoid default, good luck with putting enough aside for reforms after all the necessary expenditures. It follows, then, that PML-N’s dilemma is also Pakistan’s dilemma.

The budget is where the ruling coalition finally runs out of tricks and loses control as the economy falls off a cliff. And it’s also when the country begins to come to terms with the fact that it’s just not possible to get enough gas in the tank to keep going.

It must pay back well in excess of $70 billion over the next three years, and there’s just no way of taxing, reforming, borrowing or begging enough to get that much in that time.

It’s already too late.

Copyright Business Recorder, 2023