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Pakistan needs a grand bargain?

As we had warned the PDM (Pakistan Democratic Movement) government and their facilitators that the political mess created as a result of the vote of no-confidence in March 2022, is exacting a heavy toll on people and all productive sectors of the economy in the shape of record high inflation and unabated PKR slide. National CPI inflation has accelerated sharply to 25% in July, the highest in the last 14 years. The rupee has gone into a free fall, declining to Rs 240 against the US dollar, showing complete lack of credibility of the PDM government and its economic policies.

Instead of taking necessary corrective actions, the PDM government continues to waste time by playing the blame game. They blame the Imran Khan government for their economic mess because he provided a subsidy on petroleum products to the citizens to shield them against record high global commodity prices. The total amount spent to subsidize petrol and diesel prices in Pakistan was only Rs 248 billion, which is less than 0.4% of GDP. Can the PDM financial wizards explain how such a miniscule amount of spending derail the whole economy? The PDM claims, however, defy all logic.

The other claim made in the Joint Statement by the Ministry of Finance and the State Bank of Pakistan alleges that ‘policy slippages since February led to a delay in completing the next review of the IMF program’. This is utter nonsense. The IMF Board disbursed $ 1 billion in February 2022 under our government and endorsed the policies undertaken by our government. The IMF Board stated that ‘the authorities’ recent economic and financial policy efforts were appropriate to safeguard macroeconomic stability and debt sustainability’. The next IMF staff review was scheduled in March 2022, around the same time that the vote of no-confidence was tabled by the PDM leadership, thus derailing the existing IMF programme.

The reason that the IMF programme has still not been brought on track is the non-serious attitude of the PDM leadership. The Minister of Finance has presented 5 budgets in a space of a few weeks. The ‘Candyland budgets’ were full of tricks and treats but lacked any substance. This was the primary reason why the credibility of the government in front of the IMF, the international credit rating agencies, international investors and domestic markets has hit rock bottom. Fitch, Moody’s and now S&P have all downgraded Pakistan’s outlook to negative. The yields on the Pakistan Eurobonds have risen to over 50%, the highest price ever quoted for Pakistan sovereign debt, effectively pricing us out of the markets. The local markets are in complete panic with the rupee in free fall while the borrowing cost for the government short-term paper has crossed 15%, the highest levels since 1999.

The other example is the mismanagement of the energy sector. At a time when international commodity prices are at a record high, the government has taken no measures to curtail energy consumption. Oil marketing companies and refineries have built reserves of petroleum products (petrol, diesel, and furnace oil) at a time of record high international prices. High imports in May and June have resulted in high payments pressure in July (as payments are made with a lag) resulting in massive depreciation of currency. Is Imran Khan responsible for these bad decisions?

Due to the measures taken by the PTI (Pakistan Tehreek-e-Insaf) government, the economy posted strong growth of nearly 6% in two consecutive years, first time since 2006. Record exports of $31 billion were achieved in FY22, remittances also crossed $ 31 billion in FY22, another record. All sectors of the economy whether farm output, manufacturing and services sector – all posted highest growth in the last two years.

The inclusive growth strategy adopted by the PTI government with focus on labour-intensive construction, export industry, SMEs, tourism, and agriculture had led to the creation of 5.5 million jobs in the first three years of its term in office, the highest by any government on record. On average 1.84 million jobs per year were created under the PTI government, which is significantly higher than during the tenures of governments of PPP (1.4 million) and PML-N (Pakistan Muslim League-Nawaz) (1.1 million). Current trajectory suggests that we would have achieved the 10 million jobs promised by Imran Khan in the 2018 manifesto.

It was the success of Imran Khan’s policies and the fear of his growing popularity that the PDM leadership schemed to topple our government, with the help of their facilitators. It is now obvious to all citizens that the only agenda of the PDM leadership is to protect their ill-gotten wealth through weakening the accountability laws and institutions. The PDM leadership has no agenda for the welfare of the people.

Dr Atif Mian, one of our brightest minds, has also highlighted the lack of credibility of the PDM government as being the key factor pushing Pakistan towards a near default. In his latest tweet, Atif states that ‘the toughest challenge Pakistan faces is bringing back some modicum of credibility — credibility with investors, credibility with its own people’. I concur with Dr Atif Mian’s view that ‘Pakistan needs a political grand bargain’. In democratic societies this grand bargain is achieved through elections. We must not delay this any further and call immediate elections.

Shaukat Tarin, "Pakistan needs a grand bargain?," Business recorder. 2022-08-03.
Keywords: Economics , Economic policies , State Bank , Monetary fund , International prices , Economy , Imran Khan , Dr Atif Mian , Pakistan , CPI , PDM , IMF , PTI , PPP

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