The PML-N's resounding electoral defeat (64 seats in the National Assembly against Pakistan Tehreek-e-Insaf's 116) indicates that the party's two narratives were rejected by the voting public. Political pundits mainly focused on Nawaz Sharif's victimization by the establishment and judiciary narrative (with his detractors pointing to his counsels sustained failure to present any documentary proof of the money trail for the immense wealth in his children's name); however Nawaz Sharif also claimed (though less forcefully and frequently especially after the accountability court conviction) that his administration ushered an era of economic development and frequently cited projects under the umbrella of China Pakistan Economic Corridor (CPEC) projects, begun during the party's five year tenure, and the rupee dollar parity at the time he left office as proof of a booming economy.
In the run up to the elections, Shahbaz Sharif focused on mega projects particularly those he launched as the Chief Minister of Punjab, (inclusive of the Metrobus and the 10000MW addition to generation capacity during the past five years); and more so after his elevation as the party's president he began highlighting CPEC projects which were supported by all domestic stakeholders. Five days after the elections on 30 July 2018 US Secretary of State Mike Pompeo warned Pakistan of due diligence to ensure that any assistance from the International Monetary Fund (and one would assume other multilaterals) is not used to pay back loans from China. Sadly, the PML-N administration's economic claims are also unraveling at the speed of lightening.
One would hope that the new economic managers would carefully look at the following data: PML-N administration during its five-year tenure borrowed over 13 billion dollars from China. Foreign Direct Investment (FDI) for CPEC projects as per the State Bank of Pakistan website was 1.2 billion dollars out of a total of 2.74 billion dollars in fiscal year 2017 (44 percent of all FDI inflow during that year) and in fiscal year 2018 total FDI from China was 1.58 billion dollars out of a total of 2.76 billion dollars (accounting for 57 percent of total FDI). Imports from China in 2017 were 10 billion dollars (as opposed to Pakistan's exports to China of 1.6 billion dollars) while the figure rose to 11.4 billion dollars in 2018 (with Pakistan's exports to China estimated at 1.7 billion dollars). In this context it is relevant to note that questions were raised not only about the projects under CPEC but also about the contracts/agreements signed with China which remain shrouded in mystery (as repeatedly claimed by the members of the then opposition) in spite of claims to the contrary by Ahsan Iqbal, the man heading CPEC during the PML-N tenure.
IMF expressed its concerns at the financing modalities of CPEC projects during and after the three-year Extended Fund Facility (EFF) programme (2013-16). In 2015 as part of its mandatory quarterly monitoring the IMF hastily provided technical assistance to develop/formulate a public private partnership (PPP) framework, out of its concern with what the government claimed was PPP with Chinese companies for CPEC projects; the Sharif administration did not implement the framework no doubt arguing that once the CPEC projects were completed the resulting economic growth would lay all concerns about the country's repayment capacity to rest. That these concerns have strengthened is reflected by IMF's most recent report uploaded on its website on 6 March 2018: "the elevated current account deficit and rising external debt service, in part driven by CPEC related outflows (loan repayments and profit repatriation) are expected to lead to higher external financing needs which are expected to rise from 21.5 billion dollars (7.1 percent of GDP) in fiscal year 2016-17 to around 45 billion dollars by fiscal year 2022-23 (9.9 percent of GDP)."
However, there is no doubt that mega projects were implemented during the past five years and this accounts for the second narrative that was spearheaded by Nawaz Sharif and echoed by Shahbaz Sharif. The Motorway project(s) launched during Nawaz Sharif's previous administrations were considered to be critical in the party's re-election and it came as a surprise that during the past five years the single largest allocation to any sector was for roads and not on ending load shedding, considered to be the reason behind the electoral defeat of the PPP. Be that as it may, electricity generation was the second largest recipient of budgetary allocation with the Sharif administration's thinking being that if it succeeds in ending the scourge of load shedding that not only impacted negatively on the quality of life of the general public but also massively reduced industrial output with its consequent impact on employment opportunities, it would sweep the 2018 polls. Here the PML-N administration in general and both Nawaz and Shahbaz Sharif in particular made the mistake of proactively engaging in decision-making and not engaging sector experts. The result: generation rose by over 10,000MW but the obsolete transmission/distribution network was unable to cater to the increase in generation, the circular debt continued to rise and reflected poor governance and the cost of energy was one of the highest in the region making our products uncompetitive.
Wisely, Shahbaz Sharif has desisted from referring to the overvalued rupee parity during the past five years as an accomplishment as that proved to be a severely flawed policy accounting for the unsustainable current account deficit today. The over-valued rupee policy, implemented by Ishaq Dar with a directive from Nawaz Sharif, was abandoned after the IMF mission convinced the Abbasi-led administration that the policy was responsible for making exports expensive and imports attractive leading to an 18 billion dollar current account deficit. Dwindling foreign exchange reserves, shored up by incurring debt by Dar, made it untenable for the caretakers to attempt to intervene in the market to shore up the rupee. Additionally, sources of foreign funding dried up as the PML-N administration abandoned all reforms after the completion of the Extend Fund Facility (EFF) programme and with the country placed on the grey list by Financial Action Task Force the extent of mismanagement and sheer incompetence in terms of economic management of the PML-N came to light.
What must the PTI do before and after it forms the government at the centre? First and foremost, it needs to break its untenable silence since it became clear on 26 July that it had emerged as the single largest party in parliament for three reasons. Second, to claim that it would not go into details before the cabinet has been announced and/or taken oath is hogwash given the appalling state of the economy today. The party needs to generate a comfort level for both internal and external stakeholders by stating that it would begin consultations with domestic stakeholders to voluntarily curtail expenditure in the national interest. To pledge that the cabinet will not take salaries, the prime minister will not stay at the PM House but in the Speaker's House (though the party would be unable to fire the 500 plus staff of the PM House), not use official cars or receive protocol are greatly appreciated but these are small costs, which many dismiss as cosmetic, in relation to others. One would hope that the PTI is aware that by not passing on the oil price rise, the caretakers are guilty of reducing revenue collections by 6 to 7 billion rupees for the current month and they should be appropriately dealt with.
Thirdly, Imran Khan must direct his select finance minister to begin the budget exercise or at least direct the Federal Board of Revenue (FBR) to determine the extent of the unrealistic revenue generation presented by the Abbasi-led administration in April this year and to begin the exercise of first determining how much is a realistic figure based on the Finance Bill 2018 and how to improve it on an emergent basis. The FBR has informed Business Recorderthat no such exercise is under way.
Fourthly, there is an emergent need for the government to direct the Pakistan Bureau of Statistics to present more realistic and rationalized data to enable itself to take informed decisions.
Imran Khan, much enamoured of governance in the United Kingdom, may be well advised to revisit the amount of autonomy he intends to give to his chosen Finance Minister who has no qualifications or experience in running a country's economy. The incumbent Governor of the UK central bank is a Canadian while recently the UK government hired Obama's chief economic advisor, Professor Jason Furman, adviser to chair a panel to examine competition in the technology sector. Pakistan needs help and a qualified and experienced economist may be the way to go - an individual who may be better able to resist political pressure, as nearly all of our former qualified and experienced finance ministers showed a lack of backbone when challenged by their political masters.