EDITORIAL: Nawaz Sharif, the undisputed leader of Pakistan Muslim League-Nawaz (PML-N), resident in the UK for nearly four years, observed that his party paid a heavy price for saving Pakistan from default; he further claimed that had tough economic decisions not been taken by Finance Minister Ishaq Dar, petrol would be sold at 1000 rupees per litre by now.
Sadly, this narrative does not resonate with either the general public or the economists. The reason is fairly evident: Ishaq Dar’s flawed policies — artificially controlling the rupee-dollar parity when foreign exchange reserves were less than a month of imports that led to multiple exchange rates and rejuvenation of the illegal hundi/hawala system that cost 4 billion dollars in lost remittance inflows through official channels and raising current expenditure by a whopping 21 percent from what was budgeted for the year — violated the agreement with the International Monetary Fund (IMF) under the then ongoing Extended Fund Facility programme accounting for the stalled ninth review till the programme was scrapped in June 2023.
Without being on a Fund programme, friendly countries stopped disbursement of pledged rollovers/new loans while the rating agencies downgraded Pakistan, thereby seeking debt equity through issuance of sukuk/Eurobonds became untenable.
In other words, the implementation of PML-N’s economic policies — from 27 September 2022 to end June 2023 — was the primary reason for fears expressed by domestic as well as international economists that the threat of default was looming large on the horizon.
However, what saved the country from default was the then Prime Minister Shehbaz Sharif’s decision to engage directly with the IMF Managing Director and secure the 3 billion dollar Stand-By Arrangement (SBA) for nine months - an amount about 0.4 billion dollars less than what was left undisbursed under the suspended EFF but with the prior condition being the reversal of Dar’s flawed policies.
It is indeed surprising why the Fund approved the rise in current expenditure for the current year by 52.9 percent from what was budgeted last fiscal year (approved by the Fund as a prior condition for the seventh/eighth EFF review success and subsequent disbursement on 2 September 2022) and 26.5 percent from the revised estimates of last year.
Thus, it is not in question that the PML-N economic team led this country towards the possibility of default and that it then saved the country from default by succeeding in securing the SBA.
Nawaz Sharif’s contention that petrol would have been sold at Rs 1,000 per litre had the agreement with the IMF not been secured is perhaps his attempt to deflect widespread criticism for the rate prevalent today and round it off to a figure which is about three times the rate today.
That too is cutting no ice with the general public as the then finance minister, Ishaq Dar, raised the budgeted reliance on petroleum levy (an indirect tax whose incidence on the poor is greater than on the rich) to 30 percent of all non-tax revenue for the ongoing year (869 billion rupees in actual terms), a target that is inexplicable, given the decline in petrol consumption due to rising prices while a better option would have been to widen the tax net by bringing traders/builders/rich landlords into the tax net.
The PML-N narrative that Nawaz Sharif would, if elected, resolve all economic issues facing the general public does not instill any comfort as his to-date preferred Finance Minister is responsible for at least half of the inflation that besets the public today.
To maintain that the PTI (Pakistan Tehreek-e-Insaf) government is the one responsible for the harsh conditions of the EFF does indeed have some relevance but the bulk of the blame for the economic impasse today rests with the PML-N economic team led by Dar as he violated the agreement not by implementing out of the box economically astute decisions but by economically flawed decisions that account for today’s concerning macroeconomic indicators.
One can only hope that the stakeholders are fully cognizant of serious errors on the part of the PML-N economic team in the event that the party forms the next government in the Centre and take appropriate mitigating measures.
And seek a finance minister with a strong academic background in economics rather than accountancy but preferably no experience as an economic team leader in Pakistan, given that they all made some contribution to compounding the issues facing the economy.
Copyright Business Recorder, 2023
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