A futile political pursuit has gripped Pakistan for the past few years. The primary concern of all political parties seems to checkmate the opponent through a more pronounced political narrative, totally overlooking the fact of whether the narrative is really practicable or feasible. Politicians just want to look smarter and more dexterous in playing the political moves on a daily basis. Former Prime Minister Imran Khan admittedly mastered the art and proved himself to be the most successful and effective player in the field before the violent mob attacked important military installations on 9 May. Despite this, the relative positions of different players on the political chessboard remain fluid. The narrative-building game is fast losing its appeal in the eyes of the people who are facing acute economic crunch because of shrinking incomes as a result of sky-rocketing inflation and depreciating rupee value.
The economy has admittedly been the biggest casualty of this mindless political adventure. Maintaining persistent political pressure since his removal from power through a no-confidence move in April 2022, Imran Khan successfully put the previous Pakistan Democratic Movement government on the back foot, which truncated its capacity to act and react with economic rationale in a proactive manner. The caretaker government has failed to make a significant improvement, but it has somehow managed to halt the economic freefall to some extent. The PDM government’s strategy to procrastinate on difficult decisions jolted the foundation of the economy. As a result, the PDM, particularly the PML-N, greatly lost its political capital, which further curtailed its ability to implement the much-needed economic reforms.
It will perhaps be generally admitted that the economy of a country with over 230 million population, regardless of how weak it may be, is nothing less than a titanic, which has its own momentum and cannot be controlled whimsically. Tangible, effective, and timely steps are required to change the economic direction as any delay just makes the situation even more difficult to handle.
It is painful to see that political mayhem has unfortunately left Pakistan’s economy badly bruised both at the micro and macro levels. The country is currently facing an economic meltdown and its survival solely depends on another IMF program after the ongoing program comes to an end in 2024. The country desperately needs to boost its foreign exchange reserves to meet its foreign debt obligations. Even the “friendly” countries like China, Saudi Arabia, and the United Arab Emirates had reportedly been reluctant to help the cash-starved Pakistan and came to Pakistan’s rescue only after it got the IMF’s clean chit.
It is believed that the new government will have to negotiate another IMF loan in March 2024. This situation is quite unprecedented and provides an insight into the challenges that Pakistan currently faces on the external front. The repeated requisitions to “friendly” countries albeit with little success have further weakened the government’s position at domestic and international levels.
These ground realities forced former Prime Minister Shehbaz Sharif to publicly express the government’s commitment to meet the IMF conditionalities in 2023 when the country reached the verge of economic default. Though the Prime Minister had been complaining about the IMF’s attitude, he expressed his government’s unwavering commitment to adhere to the IMF program. As the first step, the government removed the “cap” on the exchange rate at the beginning of 2023, which resulted in a sharp devaluation of Pakistani rupee. The depreciating rupee, however, failed to boost the suppressed exports.
The removal of the exchange rate cap must have been a difficult choice for the government, not only because it resulted in the loss of considerable political capital for the then government, but also because former Finance Minister Ishaq Dar believed in strong currency to control inflation. He has been facing criticism at home and from bilateral and multilateral creditors for managing the exchange rate. Though his strategy is against economic logic, it worked well during PML-N’s last tenure when Ishaq Dar managed the exchange rate successfully and controlled inflation without compromising on the country’s growth potential. As a result, the PML-N managed to increase the GDP growth to 6 percent and reduce inflation to less than 4 percent by the end of its last term in 2018.
This strategy suffered a massive failure in 2022 and 2023 as the economy had already been deprived of any space for such maneuvering. The resulting depreciation of the Pakistani rupee put further pressure on the gas and electricity tariff. The country is already facing a circular debt of over Rs.4 trillion in the power and gas sectors. No wonder, the IMF is incessantly demanding upward revision in gas and electricity tariffs despite several sharp increases in the past. The government is aware that the existing gas and electricity tariff would further increase the already unsustainable circular debt. Meanwhile, the increase in gas and electricity tariffs, coupled with the withdrawal of subsidies and the imposition of new taxes to bridge the fiscal deficit as per the diktats of the IMF, have made lives more difficult for the people. They have seen their incomes shrinking to unbearable limits in the past couple of years.
The burgeoning circular debt and twin deficits have been a cause of fiscal dysfunction in the country, which is not capable of meeting the dire needs of the people. The government’s response to the massive flooding in 2022 was a litmus test of the shrinking government’s capacity to address the people’s grievances. The estimated $30 billion loss and its impact on the livelihood of millions of people made the situation even worse. This has remained a scar on the national psyche as the country could not do enough for the flood-affected people because of the precarious fiscal situation.
Viewed from this perspective, it can be safely inferred that the politicization of economic management will not help the economy and will further complicate the situation. The unrealistic exchange rate has only resulted in reduced remittances and depleting foreign exchange reserves. The prevailing economic uncertainty and the reduced inability to deal with it in a convincing manner make the 8 February elections exceedingly important.
There was a need to carry out election reforms and build political consensus among political stakeholders on a minimum agenda before elections were held. This has not been possible because the parliament had been dysfunctional after the PTI member resigned from the assemblies. Unfortunately, the political leaders are not ready to hold talks outside the parliament either. All this indicates that the 8 February elections, though necessary, will not resolve the political and economic issues being faced by Pakistan, particularly when the PTI has already started expressing reservations over the current judicial process.
In this depressing scenario, President Arif Alvi had an important role to play, but he seems to have taken a back seat for some reasons. In the existing democratic dispensation, he remains the only figure who can mediate between the two sides. It is unfortunate that he has been too partisan for the office of the president in the past. Lately, he has tried to bring political parties to the table, but they continue to have reservations about his past decisions.
It is important that all political forces hold talks and move ahead before the political and economic compulsions compel the other forces to intervene. The two sides should not overlook the potential risks, which their intransigence poses to the democratic system.
