Standard & Poor's Ratings Services' comment on the 2013 general election in Pakistan is expected to provide the shot in the arm that the economy badly needs. This welcome development has taken place when the country's economy is finding it extremely difficult to navigate through choppy waters on account of a variety of factors. This international development has coincided with a highly significant domestic event: the Karachi Stock Exchange's benchmark 100-share index ends 1.65 percent, or 328.5 points, higher.
Seeking to explain why it has termed the election "a key achievement for Pakistan's maturing democracy", S&P spelled out yesterday some formidable challenges that the country encountered during its journey towards the May 11 vote. But what is more important from Pakistan's perspective are S&P's broad but sincere expectations from the post-May 11 government. In a commentary titled "Successful Elections Are Crucial As Pakistan's Balance Of Payments Pressures Mount," published April 4, 2013, it had said, "we outlined our view that timely, successful, and credible elections were essential for Pakistan to deliver a government with a reasonable chance of tackling the country's economic imbalances, including a looming balance of payments [BoP] crisis."
That Pakistan will go to the IMF soon after the PML-N assumes power mainly because of BoP woes is a very high probability. It is, however, a widely acknowledged fact that some of the IMF conditionalities, particularly the one that required the government to introduce Reformed General Sales Tax (RGST), could not be implemented mainly because of dogged resistance put up by Opposition party PML-N and one of the partners in the PPP-led coalition, MQM. The Fund's conditionality with regard to fiscal adjustments had required the government to make significant subsidy cuts and expand tax base. While the efforts aimed at tax increases remained unsuccessful due to factors such as massive corruption in the country's tax arm and government's reluctance to levy tax on agriculture income, the government made no efforts to reduce subsidies because of fears of widespread popular protests.
The last month's S&P report had said, inter alia, that the post-election "honeymoon period [in Pakistan] should allow the new government to take unpopular decisions that a new IMF loan would certainly entail." It is, however, needless to say that you can't get a loan unless you show your capacity and ability to deliver in accordance with the IMF terms; and there's the rub-how do you get loan when the Fund knows that you will not be able to carry out the required reforms or fiscal adjustments because of popular pressure. In other words, it is like a situation in which a factory is ready to go, but there is no market for products.
PML-N's economic face Senator Ishaq Dar has been tasked by the party leadership to work towards the preparations of budget 2013-14. This development brings to one's mind his extremely brief stint that he played in the beginning of the PPP-PML coalition government following 2008 general election.
The then finance minister Dar was said to have presented to the global institutions the real magnitude of country's fiscal woes. He had reportedly tried to portray a true picture of country's fiscal imbalances, which earned him criticism from the coalition partners. Not only did his seemingly straightforward and arguably unsophisticated outlook make the job of his successors arduous to hit the global market ground pounding out a sales pitch, no success, just sales pitch after sales pitch, it unfortunately led to create doubts over transparency in Pakistan's economic-financial system. It would be a curious paradox that Dar would be possibly inheriting a more profound fiscal situation than the one that he encountered in 2008 as a representative of a party that was a junior partner in the PPP-led coalition government.
Last but not least, the current economic situation underscores the need for a pragmatic approach. After all, as pointed out by State Bank of Pakistan hardly two months ago, "Pakistan has never defaulted on its international and domestic debts. In fact, our economy has grown consistently, but not spectacularly, over the past six decades".
The writer is newspaper's News Editor
Comments
Comments are closed.