Like ‘Shehbaz speed’, finance minister Ishaq Dar’s bubble has been burst as well. The ‘Dar magic’ was as artificial as his currency peg. However, Dar is not the problem alone. Other stakeholders cannot be exonerated by just blaming Dar. PDM (Pakistan Democratic Movement) leadership should not be allowed to blame everything on the PTI (Pakistan Tehreek-e-Insaf) government.
The onus is on all parties - from PTI for its last-ditch effort to counter vote of no-confidence (VoNC) through thoughtless subsidies; architects of VONC; PM Shehbaz and his cabinet; the team at the finance ministry; and, most importantly, the State Bank of Pakistan. All stakeholders must be held accountable to the people of Pakistan, as they were derelict in their respective duties to bring an already febrile and imbalanced economy to the brink of painful economic default.
The whole system has been exposed in the process. The capacity to run the country and steer it out of crisis no longer appears to be a given in the power centers. It has now become apparent that the country has been run on raw power and personality cults – including that of Dar. IK (Imran Khan) managed to expose all the institutions and groups, himself and his opponents alike: whether it was his team of ‘competent’ professionals; the establishment; PDM leadership; judiciary; media; or intellectuals. Their negligence, - or worse - malfeasance, is nakedly visible to all now.
There is a system-wide collapse; and at the very least, there must be an acknowledgement of the same. The blame passing game must end. PTI used to blame previous governments while it was in power. In that time, the government, along with the establishment, used coercive measures to counter aggressive opposition and media. Now the tables are turned, and the so-called oppressors, along with the establishment, are zeroing in on IK.
The falling economy is not on the agenda. Deteriorating social fabric is not bothering anyone. It’s an ugly fight of elite club. Unfortunately, some big media houses and intellectuals are party to this infighting.
Pakistan’s economic skeleton and the institutional flesh have for long been developed and nurtured on control mechanisms. That is an inherently flawed mechanism. Food price control is left to the district management. The argi produce price decision is of provincial governments. Industrial winners are handpicked, and the infancy protection continues perpetually.
The gauge to measure the success of any finance minister is the ability to control exchange rate and the central bank in general. Capital controls are kept tight while back-door illegal channels are nurtured. The government’s performance was gauged on how effective it is in keeping energy prices low without any regard to the global prices. In the process, deteriorating quality of health, education, and environment was never allowed to take primacy in the political and power discourse.
Now it is haunting us. The economy perhaps can no longer be sustained without public debt restructuring. It is a foregone conclusion. However, when we would go to debtors, they may ask that a similar exercise was done a couple of decades back, and what have you as a nation learned from the previous experience? What structural changes did you make after being allowed the fiscal space? The question is why would the world help out a habitual rent seeker.
However, the controlling elite is not ready to burst its own bubble. It is the same business elite influencing policies that had used the concessional long-term finance for exports to buy and develop real estate. And some powerful institutions aggressively expanded their space in housing authorities. It was a win-win for both. However, the fiscal space was wasted.
The focus of political governments remained on building physical infrastructure and expropriation of funds from these to fund elections. In certain cases, the money generated through illegal means is being used to purportedly establish media houses to protect their rents and accumulated wealth. It’s all becoming blatant and naked.
The world can see through it. The world is not ready to bail the elite out again. Power hubs in the country who historically relied on geopolitical rents and expanded their economic interests though domestic economic skewed structures need to realize that the party is over. They need to act accordingly, otherwise time is not far before their bubble is burst as well.
To conclude, in the short term, there is no guarantee of IMF review completion even after unleashing the Dar’s currency peg. The fiscal steps needed are much more than what the government is offering. The IMF does not agree to one-off taxes, withholding tax on banking and import duty levy. The government might have to do more.
There would be another round of big energy price increases. Inflation is bound to increase and so is the case with interest rates.
Even with this review completion, there is a full stop by July. And to counter that, a new program is inevitable with a possible plan of debt restructuring. Here, the IMF and bilateral lenders may ask the power elite — including establishment, to confine their space financially. There would be no smooth transition. Be ready for some turbulence.
Copyright Business Recorder, 2023