The worst possible time for political chaos is when economic conditions are deteriorating, and the singular focus should be to manage the economy. Unfortunately, economic considerations are on the backburner. One may wonder what is opposition’s imperative to oust IK at this point in time. Foreign reserves are depleting at record pace, and the currency is depreciating drip by drip every day. Stability and clarity are warranted on certain economic issues. That is missing.
SBP’s foreign exchange reserves are down by $6.5 billion in the past six weeks. Pak Rupee has touched 185 against the USD. IMF programme is at the stand still. Moody’s (the global credit rating agency) has warned that the vote of no-confidence is credit negative, and if the rating falls, it could be disastrous.
It is not clear who would be next finance minister and for how long that person may stay in office. It is also unclear who would be the SBP governor, as current governor’s term ends in a month. If PML-N returns to power, ‘Dar-nomics’ may come into play, and there could be a different face at the SBP. The question is who will negotiate with the lenders (including IMF) and who would sign the Letter of Intent and on what conditions.
Shehbaz Sharif could be the next PM and he has categorically said that beggars cannot be choosers. In TV talks he has mentioned that global commodity prices are spiraling out of control, and next government may have to increase petroleum prices. The question is if the upcoming government must take tough economic decisions, why would it insist on bringing change in the government. Either way, economic interests of the country are being compromised in the process.
There is no clarity on what form new government might take and how long the new government may stay before elections are called. All opposition parties are together to oust IK, but beyond that their own interests’ clashes. The question is who may take onus for his decisions. There is total confusion. The political mayhem has economic cost and the country will pay.
The first and foremost need is to build reserves. Whoever is going to be in power ought to knock doors of the usual set of lenders to get much-needed liquidity. The energy prices must be revised up – both of petroleum and electricity. The price differential claim (PDC) is approaching Rs40 per liter in diesel and Rs25 per liter in petrol. This is no longer sustainable. The number is getting bigger with fall in currency. Similarly, the fuel charges adjustment (FCA) is becoming larger due to higher fuel cost, currency depreciation, and higher reliance on furnace oil.
There are no quick fixes. All choices are difficult. No one with sane mind would like to assume the position of finance minister right now. This is time for continuity in the policies. Ever since the vote of confidence became real, government’s focus has shifted completely away from economic management. There is a cost that the people of Pakistan have to pay.
It is all about priorities. Economic challenges are paramount. Some say that IK’s foreign policy stance does not suit the stance of a begging nation. With him out, foreign policy tilt shall shift too. The opposition and even army chief’s (based on his recent talk) leanings contrast with IK’s. The question is would that help in negotiating better terms with the IMF. Would it be able to get enough funding to build reserves to stop the free fall of PKR? The question is what magic wand will the next government have to take the economy out the mess?
The truth of the matter is that there is none. However, if reserves are to be built and IMF renegotiations are done on less stiff conditions, an economic breather could be generated. And then ‘Dar-nomics’ can come in play again. But like past, it would not be sustainable. The country has to face pain to move on a sustainable path. However, it appears that the powers-that-be do not have appetite for pain anymore.
Copyright Business Recorder, 2022