EDITORIAL: The refrain that political uncertainty is exacerbating the economic impasse due to inconsistent policies, weak governance and public administration has also been taken up by the State Bank of Pakistan (SBP) in its latest report that will simply add to the existing loud clamour by the opposition, the Shehbaz Sharif-led government (blaming the Khan administration) as well as international credit agencies, which will have a direct bearing on the cost of borrowing from the commercial sector abroad as well as issuance of debt equity.
This emphasis, however, ignores two critical elements: (i) political uncertainty (be it within the three pillars of state - executive, judiciary and the legislature - or within institutions embed in a pillar) has little, if any, immediate fallout unless an opposition-led protest movement is launched in a major city or region that can disrupt economic activity, a situation that so far has not been evident; the recent violent protests by the Jammu Kashmir Joint Awami Action Committee (JAAC) was a spontaneous movement against the rising cost of living in the region not led by a political party; and (ii) the economic impasse is of decades’ long duration premised on consistently flawed policies that continue to this day.
Sadly, there has been much consistency in spite of abusive rhetorical attacks by members of the opposition against a sitting government or vice versa as the beneficiaries of nepotism have varied from one administration to the next but the policies to benefit a particular set of influentials’ over another have varied but little. This explains the proliferation of amnesty schemes, the resistance to desist from issuing statutory regulatory orders in spite of donor opposition and failure to slash current expenditure.
The SBP report noted that weak governance and public administration are the outcome of political uncertainty. One would fully support this claim but then neither of these two factors can be termed as recent components of our socio-economic fabric.
Many would claim that they date back decades and sustained failure to deal with these issues not only worsened the situation over time but even at present there are no visible corrective policies in place. It would be relevant to note that from late October 2021 to almost June 2022 when the government signed off on the Stand-By Arrangement with the International Monetary Fund (IMF), in violation of the agreement with the Fund, the rupee-dollar parity was inanely controlled as at that time reserves had plummeted and could not be used to prop up the rupee.
This led to emergence of multiple exchange rates and reactivated the hundi/hawala market that caused a loss of nearly 4 billion dollars in remittance inflows. There has been no accountability on this matter and no heads have rolled even though the cost to the country was clearly significant.
The focus of the government today as its predecessors is on the very short term: meet its expenditure priorities today rather than formulate a policy framework that has the capacity to bring in long-term dividends. This appears to be the mindset of the current batch of stakeholders.
The sale of all state-owned entities (SOEs) would surely generate considerable monetary resources on the one hand and reduce budgeted outlay on the other through luring foreign investors. In Pakistan today investment has been on a downward trajectory, partly because the government has been borrowing heavily from the domestic commercial banking sector and thereby crowding out private sector borrowing, or through a high policy rate of 22 percent (which is not justified given the claimed 13.1 percent core inflation for last month).
Internationally, the rating agencies have yet to upgrade Pakistan, in spite of the completion of an IMF programme and ongoing negotiations for the next, which accounts for the sustained failure of the government to borrow from the commercial sector abroad/debt equity as the rate on offer is too high.
This high rate is not due to political uncertainty but owing to the low rating accorded by international credit rating agencies because of our sustained flawed economic policies. In this context, a foreign investor is unlikely to make an offer for an SOE unless the fiscal and monetary incentives are too high to be acceptable.
There is, therefore, an urgent need to be realistic about the ongoing situation, which cannot be effectively dealt with without implementing out of the box Pakistan-specific policy reforms, beginning to live within our means that would require significant curtailment of our current expenditure and waiting out the criticism today to be transformed into plaudits and praise as the economy turns around but that will not be within one or two budget cycles.
Copyright Business Recorder, 2024
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