Caretakers and a trembling economy

Elections are the backbone of a strong democratic process. Free and fair elections and a smooth transfer of power form the basis of a stable democracy in any country. In the run-up to the general elections, some democratically elected governments’ transition into caretaker mode wherein their powers are severely limited.

India, much like the rest of the world, relies on its Election Commission of Pakistan (ECP) to ensure a free and fair election while the elected government continues under strict observation of the ECI (Election Commission of India) based on a uniform code of conduct all parties adhere to.

However, Pakistan is almost unique in institutionalizing the practice of appointing non-elected officials to head caretaker governments. Bangladesh’s caretaker government setup too has not continued; in fact, Bangladesh had installed a military-backed caretaker setup in 2007 that ruled the country under a state of emergency for the rest of the year. Its goal was ‘minus two’ (remove the leaders of the two main parties from politics).

The question is why have a caretaker setup in place, especially if it doesn’t even guarantee satisfied political parties? How can caretakers satisfy the stakeholders by ensuring a transparent process of delimitation after the recent statement from ECP asserting that scheduling elections cannot proceed until the delimitation of constituencies for national and provincial assemblies is completed, which is now expected to be concluded by November 30, 2023? This situation highlights a concerning level of neglect and inefficiency on the part of ECP’s Chief and all other relevant stakeholders, who could not complete this process before the completion of the National Assembly’s term. It has unfortunately become fashionable for our ruling elite to disregard the Constitution.

Pakistan is mired in a plethora of problems on various fronts. The economy is in the doldrums and the country barely averted default when it signed a $3 billion deal with the International Monetary Fund in July. While close allies such as China, Saudi Arabia, and the United Arab Emirates are promising investment in the coming days and financial assistance in the short term, Pakistan is scheduled to make repayments of more than $80 billion over the next four to five years.

Caretaker Finance Minister Shamshad Akhtar had an introductory virtual engagement with the staff mission of the International Momentary Fund (IMF) and is reported to have promised steadfast implementation of the policy actions committed under the $3 billion Standby Arrangement during the tenure of the caretaker government to ensure economic stability.

Pakistan’s circular debt has continued to rise, with the total payables for the July-April FY23 period clocking in at Rs. 2,631 billion. This is an increase of 7.38 percent from the same period last year, when the circular debt stood at Rs. 2,450 billion. A mounting circular debt is a serious problem as it means power companies may be unable to pay for fuel, infrastructure maintenance, and upgrades, thus putting the viability of the entire energy system at risk.

A major reason behind the increase in the circular debt is unreleased and unclaimed subsidies, along with interest charges payable to independent power producers (IPPs) for delayed payments. A budgeted subsidy of Rs. 108 billion for July-April FY23 has remained untouched, while unclaimed subsidies amount to Rs. 30 billion, straining the energy sector.

Besides this, interest charges on delayed payments to IPPs reached Rs. 76 billion in July–April FY23 and are projected to further increase by Rs. 30 billion by the end of the fiscal year. Moreover, Rs. 56 billion has been utilized from IPPs’ claims for FY23 to cover Public Holding Limited (PHL) markups.

The escalating circular debt crisis necessitates immediate and decisive action to address key challenges and restore stability in Pakistan’s energy sector. Priority must be given to resolving subsidy disputes, ensuring prompt payments to power producers, and improving the efficiency of distribution companies.

These measures, combined with comprehensive reforms, are crucial to curtail the mounting circular debt, stabilize the energy sector, and create a sustainable foundation for economic development.

It is imperative for caretakers to come together to implement effective strategies that promote transparency, accountability, and fiscal discipline in order to overcome the current crisis and pave the way for a resilient and prosperous energy industry in Pakistan.

Furthermore, caretaker FM needs to meet the IMF’s standby agreement’s requirement regarding the maintenance of the agreed percentage of parity between inter-bank and open market exchange rates. It is anticipated that, before commencing the next IMF review for the release of the second tranche of the SBA loan, there may be a further devaluation of the rupee and a rise in commodity prices that will trigger further inflation.

We should realize that our challenges will continue to persist unless we initiate fundamental reforms in both governance and fiscal matters.

The ineffective allocation of resources within our system not only places a heavier burden on the general public through increased taxes and duties but also contributes to rising commodity prices as a means to cover fiscal deficits. Stemming from this is resource mismanagement.

These reforms can only be initiated and successfully implemented by a government with a fresh mandate from the people, secured through free and fair elections. Any delay in conducting elections will not only exacerbate issues for the ordinary citizen but will also have repercussions on the country’s multilateral and bilateral relations.

Copyright Business Recorder, 2023