Country at the crossroads

The election held on Feb 8th in Pakistan threw up a number of surprises with a significant shift in the country’s political landscape. The election outcome resulting in a hung parliament with no single party in a position to form government was expected, with PTI (Pakistan Tehreek-e-Insaf) already marginalised in the electoral process.

Unexpected is the emergence of PTI in the arena as a majority party in the shape of PTI-backed successful independent candidates, thereby knocking out the envisaged post-election road map for state governance amidst growing confusion and bewilderment.

With no political party commanding a 2/3rd majority at the centre, nor even a simple majority, the decision-making processes and any constitutional amendment are likely to be driven and influenced more by conflicting self-interests of the coalition partners, watering down the key objectives. This is not what the country needs in these unprecedented times of political and economic challenges confronting the nation.

Under the emerging scenario, the PML-N (Pakistan Muslim League-Nawaz) is expected to lead the federal government while the PTI-backed independent candidates will be forming the government in KP, the PPP (Pakistan People’s Party) in Sindh, PML-N in Punjab and a coalition government in Balochistan. The political complexity at the federal level and even a greater one at provincial level has the potential to have a lasting impact on the social, political and economic spheres in the country.

At stake now is the economy of the country and the fate of teeming millions who have voted under the hope for better times ahead. The state economy and peoples’ welfare are of secondary interest to the political parties and little has so far been achieved at macro or micro levels. Higher inflation, rising utility tariffs, growing unemployment and, above all, the malaise and despondency among the masses are likely to continue unattended.

Economic vulnerability now looms with political uncertainty at its core. The Moody’s Investors Service has recently given a “credit negative” signal to Pakistan in the face of prolonged political ambiguity and social tensions over election results, which will make it tough to approach the IMF (International Monetary Fund) for a new programme, weaken external economy and make liquidity management more challenging.

In its report titled “Political uncertainty persists in Pakistan following inconclusive election results, a credit negative”, the global credit rating agency said: “overall, uncertainty around Pakistan’s ability to quickly negotiate a new IMF programme after the current one expires in April 2024 remains very high. Pakistan’s government liquidity and external vulnerability risks will remain very high until there is clarity on a credible longer-term financing plan.”

It said Pakistan’s foreign exchange reserves remained “very low” at $8 billion as of February 2, 2024, sufficient to cover only about six weeks of imports and well below what was required to meet external financing needs for the next three to four years.

Based on the IMF’s report published in January, Moody’s said Pakistan’s external financing needs were about $22 billion in the next fiscal year (Jul-Jun) 2024-25 and about $25 billion annually in fiscal 2026 and 2027. “The country will need a longer-term financing plan to meet its very large financing needs for the next few years, after its current IMF programme ends in April 2024.”

At present, Pakistan has been assigned a stable rating of “Caa3” by Moody’s. It said prolonged delays in the formation of a government would increase policy and political uncertainty at a time when it faced very challenging macroeconomic conditions.

The performance of the former coalition government of Pakistan Democratic Movement (PDM) in the fiscal year 2022-23 was disappointing. When austerity and debt servicing was the need of the hour the government expenditures were over Rs2.2 trillion higher than budgeted that resulted in a 25% increase in the debt burden for every citizen, whereas, the gross public debt jumped to Rs62.9 trillion by June 2023.

Hopefully, the new coalition government will be sensitive to the social, economic and fiscal issues of the state, which in the meantime have exacerbated further. Pakistan’s debt-to-GDP ratio is already above 70% and the IMF and credit rating agencies estimate that interest payments on its debt will soak up 50% to 60% of the government’s revenues this year. Debt exceeds legal limit by Rs14.5tr. That is the worst ratio of any sizable economy in the world.

Every macro fundamental is flashing red; notably, growth, debt, revenue mobilisation and investment. Some strong and immediate decisions have to be taken by the new government.

The decision to immediately go for another IMF programme appears settled. A $3 billion programme from the International Monetary Fund (IMF) runs out next month and securing a new programme is imperative, given that Pakistan’s foreign exchange reserves are abysmally low compared to its large impending external debt repayment needs. Former deputy governor of the central bank, Murtaza Syed, has said. “There is no alternative”. In a recent public statement Shahbaz Sharif voiced similar compulsion and has been vocal in advocating another IMF programme.

For economic growth, investment and structural reforms all hopes are pinned down on the Special Investment Facilitation Council (SIFC), which has been empowered by the former PDM government and later by the current caretaker government to take appropriate economic decisions.

The SIFC was established on 20th June 2023 and was tasked to act as a single window to facilitate foreign and local investors, establish cooperation between all government departments (federal and provincial) and fast-track development, including privatisation – objectives that required representation from the senior-most members of the executive and civilian bureaucracy (federal and provincial) as well as the military.

In the coming years the economic and fiscal discipline of the country shall be driven under the direction of IMF and SIFC, leaving little room for political leadership to have its way which, in any case, has not come up with any plan of its own to fix the economy and provide relief to industry and the masses.

The SIFC’s role as advisors and decision-makers may work well. But, when it comes to the implementation of the decisions and delivery on ground, there are multiple bottlenecks. The executing entities in the public sector are politicised, compromised, outdated and lack competence.

The privatisation commission of Pakistan is struggling since months to effectively put in place the privatisation of loss-making public sector enterprises; notably, the Pakistan Steel Mills and Pakistan International Airlines (PIA) despite the urgency and concern expressed, time and again, by the IMF.

The much-needed foreign direct investment, so well projected by SIFC, is not forthcoming even in the high potential mines and minerals, and oil and gas sectors. Foreign Direct Investment is all about country perception, which in case of Pakistan leaves much to be desired. It needs a dramatic turnaround.

To bring the economy back on track it is imperative to restore political stability and to dramatically overhaul the government machinery.

Copyright Business Recorder, 2024