Economic pain: an illusion of choice

Pakistan is facing an illusion of false choices in managing its ongoing economic crisis. It can either return to the IMF (International Monetary Fund) without wasting any time. Or, it can default on its sovereign obligations. Unfortunately, however, there is no third option. Meanwhile, time is running short.

The rational choice is to return to the IMF and undertake whatever tough measures are necessary. However, for various reasons, authorities are irrationally inclined toward the wrong choice.

In case Pakistan returns to the IMF, there is an immediate cost to pay in terms of inflation due to increase in energy prices and new taxes. However, the alternate is a sure recipe for a much bigger disaster. There would be a huge cost to pay for the next 5-10 years. In the 1998’s crisis, 9/11 was the trigger which allowed quick recovery. This time, Pakistan’s economy may not be lucky. Pakistan’s policymakers should make the right decision while there is still time.

However, the Pakistan Democratic Movement (PDM) coalition government, particularly Pakistan Muslim League-Nawaz (PML-N), is obsessed with saving its political capital. This will amount to sacrificing the wider interest of the country. If the party leadership is convinced that they cannot take rational decisions due to political compulsions, it would be far better for Pakistan’s future that they exit power corridors. Why did the coalition of all the parties take power eight months ago through a VoNC (vote of no-confidence) when they were unwilling to do what was necessary to ensure Pakistan’s economic solvency?

PML-N officials privately agree that they are afraid of reprisal from opposition which in turn keeps them from taking tough decisions. The mantra of the so-called ‘charter of economy’, which is being pushed by finance minister Ishaq Dar, lately is in part driven by his desire to ensure PTI (Pakistan Tehreek-e-Insaf) no longer bashes the government for increasing the prices, currency adjustment, or other necessary measures. The government is effectively asking PTI to share the burden of criticism, while some are toying with the idea of a unity government, i.e., to run the current parliament with all the party’s stakeholders in government with a view to steering it through the crisis. Why would PTI agree when the incumbents had built a movement against the then government for taking similar decisions in recent past?

And the whole point of losing political capital is a red herring. In fact, the party leadership has gained so much in this short stint of eight months. PDM’s leadership has received a clean slate. Virtually, all cases against top leadership are done and dusted. There are incidents of witnesses and investigators who died out in no time after PDM’s return to power. It has also prepared grounds for Nawaz Sharif’s return.

If default takes place, people will blame the incumbents. The public gives both: credit for economic wins and blame for mistakes on the incumbents. PML-N – and, in particular, Dar– was lucky during 2013-16. The IMF programme became redundant in 2014 after the oil prices crashed and unconditional cash support flooded in from Saudi Arabia. Back then, the US was still friendly, and record waivers were allowed. Dar’s reputation as an economic tsar was built in that context, which is very often ignored. Now, the tide is against him and PML-N. Whatever happens to the economy this time is on Nawaz Sharif and PML-N.

Anyhow, the political wrangling over the past year has already done enough damage to the country. First it was the outgoing PTI government and now the incumbents have left no stone unturned in making horrible mistakes at every turn. The economy is in a tailspin. It needs a certain altitude to reverse gear. If the required course of action is not taken immediately, the economy would crash.

Signs are telling. People with cash in Pak Rupee have lost confidence in the currency. They are busy converting PKR into other liquid assets. The first choice is foreign currency.

US dollar and other currencies have effectively dried up in the open market. It is followed by a run to buy gold. Now, the gold is short in supply and rates are crazy. What would people do next? Some say they might buy white goods, such as cars.

But there isn’t enough supply of these goods due to import-led shortages. People may start hoarding non-perishable food commodities such as wheat, rice, and other essential products. These could become short in the market as well.

And eventually, the default may as well happen. That is a scary realization. GDP would shrink significantly. Public’s living experience would be downgraded significantly. The currency could be in a freefall with runaway inflation. There could be shortages of fuel and food. Medical supplies could be short. This may lead to social unrest – with or without IK. It’s the masses and middle class that would take the charge. There is already resentment against the incumbents and the way they returned to power. Remember, there was no organized call by IK or PTI on 10th April 2022. It is people that poured on to streets across the country in protest to everyone’s surprise, including IK’s. Public’s views are now resonating with what IK has been saying for years.

Forces in power can disqualify IK and tarnish his reputation. But they cannot change the way people think. Pakistan’s society structure is changing. The median age of the country is 24. Yet, the incumbent leadership is stuck in the 1990s. Public craves for change in politics and economic management. IK was a new face in politics. And perhaps, new and younger faces can replace him, not the old guards.

Copyright Business Recorder, 2022