Challenging times

With the unfolding of a new chapter in Pakistan’s checkered political history, the much turbulent and fought for milestone of holding the elections in the country with the formation of federal and provincial parliaments has been achieved, carrying forward a political uncertainty amidst vociferous chants of ‘vote rigging’ far more louder, wider and persistent than ever before.

The placement of the President and the governors is predetermined and an easy one - expected to be accomplished very soon.

The multiple milestones which lay beyond this are the difficult ones, notably, ensuring economic stability and growth amidst potential political uncertainty and post- election policy changes, managing and reducing the country’s fiscal deficit to maintain financial stability, controlling inflation rates and stabilizing prices to protect the purchasing power of citizens, mitigating country’s foreign debt burden and repayment schedules, addressing the issue of unemployment, managing the energy crisis and ensuring an affordable supply of electricity and other energy sources, combating corruption and incompetence in government institutions, which can impact economic development and investments, and above all managing the 40 percent of country’s population languishing below the poverty line.

In the absence of credible economic figures coming forth from the government sources, much of what is spelled out by the global rating agencies is taken as valid, although they derive their analysis largely from the sources within the country blended well with their arithmetic and projections. Their ratings influence the global lenders.

International ratings agency Moody’s has decided to keep Pakistan’s long-term credit rating unchanged at Caa3, with stable outlook.

The rating is reported to indicate a higher probability of default and a greater degree of investment risks amid weak debt affordability. It also takes into account Pakistan’s low growth rate and high exposure to extreme weather events, which can increase economic and social costs, with high debt-servicing requirements reducing the fiscal flexibility to undertake key expenditures on infrastructure and social initiatives.

Due to the current IMF facility and some other multilateral inflows, as well as strict controls on imports and profit repatriation in the last several months, Pakistan has successfully accumulated a small stock of foreign exchange. That means the new set-up will likely meet its remaining external debt obligations for the current fiscal year and have some time to set its house in order.

The challenge, which is around the corner, is the new government’s inclination and ability to quickly enter a new IMF Programme at better terms, which is needed to attract additional financing from other multilateral and bilateral partners in order to reduce default risks.

Under a split mandate the forthcoming coalition government’s decision-making capacity will be severely constrained as its electoral mandate may not be sufficiently strong to pursue difficult reforms that will likely be required by a new IMF programme. In question is the privatisation of loss-making public sector enterprises, notably, the Pakistan International Airlines (PIA) and Pakistan Steel Mills.

This matter constitutes a sore point and long pending demand of IMF. Under the new programme, IMF is not likely to condone it any further.

The main coalition partner, Pakistan People’s Party (PPP), has opted to stay out of the of government, presumably under a strategy to come out clean while accumulating a political millage at each of government’s unfriendly public decisions. Pakistan Muslim League-Nawaz (PML-N), understandably, is conscious of it and would be reluctant to stick its neck out beyond certain limits, which at times would be inevitable.

In all probability the reform process would be measured. Much has gone wrong and anything short of dramatic economic and political reforms may not serve the purpose.

PPP has long opposed privatisation of PIA and Pakistan Steel Mills in particular. PML-N, however, supports privatization of loss-making public-sector entities, including PIA and Pakistan Steel Mills. In the last tenure of PML-N, the government was all set to privatise PIA.

But it could not achieve the objective because it had to backtrack following a violent protest launched by the politically-inspired airline workers’ union. Also, similar was the case regarding planned privatisation of state-owned power distribution companies (Discos) where, too, the PML-N government backtracked. There could be many key reforms where vote politics will override the state interest.

Much hopes are pinned on the Special Investment Facilitation Council (SIFC) established during the tenure of the then PDM (Pakistan Democratic Movement) government under the premiership of Shehbaz Sharif with the primary objective aimed at attracting foreign investments and stimulating the nation’s economic growth. Over time its role has been noticeable in structural reforms of the country.

SIFC is projected to be an entity of continuity to mobilize economic growth of the country while insulating itself from the politics of the country.

The questions how much non-political it can manage to remain and what weight it will carry under the new setup will certainly need plausible answers. One must not, however, lose sight of the fact that SIFC is headed by the Prime Minister, who is political and all decisions taken by SIFC are to be owned by him and his party, PML-N.

Copyright Business Recorder, 2024