EDITORIAL: The ongoing political impasse is a negation of what the country needs urgently to bring the economy suffering from low productivity, consequence of domestic contractionary fiscal and monetary policies, as well as global stagflation due to the Ukraine-Russian war with the people of the sanctioning countries being subjected to an unprecedented rise in inflation.
In addition, Pakistan is mired in debt, external and domestic, and the budget for the current year envisages government debt rise in a single year to an unprecedented level in the country’s history and a budgeted deficit reduction to 4.9 percent in 2022-23 appears to be untenable given the more than 9 percent deficit in the outgoing fiscal year for which blame is partly attributable to the previous administration and partly to the incumbent government for failing to withdraw economically challenging though politically astute subsidies in a timely manner.
In this milieu, the previous administration claims success in raising the growth rate to 5.97 percent (a rise on the back of major fiscal and monetary policy support, including an amnesty scheme for the construction sector in contravention of the agreement with the International Monetary Fund under the 6 billion dollar Extended Fund Facility programme as well as the rebasing exercise) and an inflation of around 13 percent and contrasts this with a Gross Domestic Product (GDP) growth for the current year of an unrealistic budgeted 5 percent (unrealistic as contractionary policies have begun to be implemented as ‘prior’ conditions under the seventh/eighth review agreement) and headline inflation of over 24.9 percent and core inflation of 12 percent in July — the difference indicative of imported inflation due to heavy reliance on fuel and cooking oil imports.
The obvious answer to the Pakistan Tehreek-e-Insaf’s claims of success is that had Imran Khan survived the vote of no-confidence they too would have had to roll back the 28 February relief package as well as fiscal and monetary support to specific productive sectors as restoration of the Fund’s package necessitated the rollback — a package without which neither the friendly countries nor other multilaterals were willing to extend any support.
The incumbent government, unable to successfully persuade the Fund to phase out the conditions agreed by its predecessor, is meticulously adhering to those conditions; however, this adherence is sadly within a political milieu evident in: (i) the withdrawal of a tax imposed in one sector on political grounds, an example being the fixed tax imposed on traders in the finance bill, to be recovered from levying a higher tax on another sector, reportedly a higher tax on cigarettes; a similar trade-off would apply if the government is not able to generate the budgeted 750 billion rupees from petroleum levy; and (ii) is unable to check the expenditure rise budgeted in the current year by a whopping one trillion rupees, an inexplicable rise, given a precarious state of the economy and the envisaged borrowing that would make this possible.
In this scenario, where global factors as well as domestic policies are stifling output, raising unemployment levels and pushing hundreds of thousands under the poverty line due to runaway inflation (partly due to heavy reliance on indirect taxes whose incidence on the poor is greater than on the rich) the political impasse has simply exacerbated the prevailing appallingly poor economic climate whereby an attempt to borrow requires prohibitive interest payments and any attempt to subsidise essential items will be opposed by the IMF under threat of a possible delay/suspension of the EFF (Extended Fund Facility).
Whatever one’s political narrative is, it is imperative to realise that engagement is the need of the hour and unilateral decisions need to be avoided at all costs. Ratcheting up of political temperature any further will not only deter foreign private investors but also foreign governments from investing in our country and therefore one can only hope that support from the public of one narrative over another may be used by political opponents to strengthen as opposed to weaken the state of the already weak economy.
Copyright Business Recorder, 2022