This is the second of a two part series of articles focusing on the Prime Minister’s strategy to deal with the economic fallout of the Pakistan Democratic Movement’s four month protest plan with the objective of ousting the government.
The political temperature continues to rise after the launch of the protest movement against the Pakistan Tehrik-i-Insaaf (PTI) government by the 11 parties’ joint opposition under the banner of Pakistan Democratic Movement (PDM).
Those who considered the political temperature at a dangerous level when the government and the opposition were hurling abuses at each other, within and outside parliament, must surely look back at those days as the lull before the storm. The question is whether the government’s strategy to deal with protests is the right one. There are three concurrent protest movements in the country today - each requiring a different approach.
First - the one getting the most airtime - is the PDM-led protests that began on 16 October 2020 in Gujranwala. The government’s narrative has not wavered: accusing opposition leadership of massive corruption, the root cause of the current state of the economy including inflation, followed by their summons/arrests by the National Accountability Bureau (NAB). And the government’s response to the rallies is almost identical to that of its predecessors – dismissing the crowd as too small, those present as being paid to attend as well as FIRs registered against the senior leadership for breaking the law.
Prime Minister Imran Khan continues to refuse to engage with the opposition, claiming he will not sit with those who robbed the country blind even at the cost of compromising the government’s capacity to pass legislation considered in the national interest. This, so argue political pundits, compelled institutions to engage with the opposition to ensure the passage of critical legislation. The government’s strategy in this regard appears to be to continue to rely on institutions, a part the establishment has played very successfully till date, and/or rely on presidential ordinances. Come 6 March 2021 when 52 of the 104 senators would be retiring the government would be able to get a majority in the upper house, and would no longer require assistance for the passage of legislation though it would still not have the two-thirds majority required to amend the constitution.
No doubt the opposition’s four-month long protest movement to topple the government (failing which it plans to march on Islamabad in January 2021) is working around the same critical time line.
Secondly, the cabinet members led by Prime Minister Imran Khan frequently attack those they accuse of profiteering/hoarding/smugglers and operating as ‘mafias’ (cartels)- a charge that strengthens the government’s political narrative because a number of such ‘law breakers’ are either senior members of the opposition parties or support them. Be that as it may, such attacks have not reduced but further raised prices. True if the government succeeds in breaking the hold of these groups on prices it would be a great achievement however to date the ‘battle’ is clearly enjoined but the casualty so far is the general public. In the past administrations engaged with these “illegally” operating groups to seek relief for the public but the Khan administration is focused on breaking their hold on prices for all times to come – a salutary objective though it is unclear when and if it will be achieved.
And finally, protests are now being witnessed in Islamabad against the failure of the government to check prices (food inflation is 15 percent and the general price level is around 9 percent). Public sector employee incomes (civilian and military) were not raised in the budget 2020-21 against the backdrop of a massive price rise while the large scale manufacturing private sector continues to register negative growth with shrinking employment levels. These negative elements are the outcome of the government’s economic team leaders’ acceptance of the International Monetary Fund (IMF) conditions which, pre-Covid, envisaged contracting growth rate from over 3 percent in the first year of the Khan administration to 1.5 percent, and raising inflation from around 6.5 percent in 2018-19 to 13 percent in 2019-20. Demands for pay raise therefore cannot be met at this time and the government has dealt with the Secretariat clerks and lady health workers strike by deferring any decision till December 2020 when it may be assuming that an agreement with the Fund would have been reached. Be that as it may, a decision in favour of a salary increase of any specific public sector group would quickly spread to other government departments and the Fund may well require even more upfront harsh conditions before the release of the third tranche.
The unsustainable budget deficit (projected at 7 percent this year - considered an understatement) reflects a widening gap between the budgeted revenue target and its realization (Dr Hafeez Sheikh massively overstated the revenue target during the two budgets he has presented and argues that the shortfall can be dealt with through privatization (for which the environment is not conducive due to the pandemic) and through higher State Bank of Pakistan profits (whose doubling from what was budgeted has raised eyebrows). Expenditure is also rising in spite of the government’s decision not to raise salaries, the lower outlay on Presidency and Prime Minister’s House and, last but not least, the decision by debtor nations to defer loan repayments plus interest if requested by poor nations till the end of the year. There is an unprecedented rise in debt - external debt to be procured in thirty nine months as envisioned by Imran Khan’s economic team is over 40 billion dollars coupled with a rise in domestic borrowing by a whopping 7 trillion rupees in just two years.
The government has indicated it will deal with the situation through: (i) amending the constitution that would allow the government to revisit the federal provincial share agreed in the tenth National Finance Commission (NFC) award which as per clause 106 (3 A) of the constitution – a component of the eighteenth constitutional amendment – cannot be reversed without a constitutional amendment; disturbingly the government is not looking at increasing the revenue pie, as envisaged by the tenth NFC award participants, through tax reforms and raising the growth rate (which would raise revenue collections); and (ii) reverse price increase through imports and one may assume through increasing subsidies however here too there are issues though they may be resolved if the government succeeds in merging all subsidies with the Benazir Income Support programme that would ensure they are targeted.
To conclude, one would urge the government to consider proposals that are doable notably reengage with the Fund to support pro-growth policies (by revisiting the time-bound conditions relating to contractionary fiscal and monetary policies unwisely agreed to by our economic team leaders) and reforming the FBR through not only administrative measures but also through revisiting the tax structure which remains inequitable, unfair and anomalous to this day.
Copyright Business Recorder, 2020