The PML-N narrative

As the Pakistan Muslim League-Nawaz (PML-N) comes to the end of its five-year term in another three days it continues to project two distinct economic narratives. One is led by Nawaz Sharif, the proclaimed leader by party stalwarts irrespective of his disqualification to hold the presidency of his party as well as any public office; and the other by the two men selected by Nawaz Sharif after he astutely decided to split the two positions he was stripped off by the courts, notably the prime ministership to Shahid Khaqan Abbasi and the party presidency to Chief Minister Shahbaz Sharif. If the two positions are held by an individual other than Nawaz Sharif, even if it be a brother, his hold on the party would slacken.

Prior to getting into the differences between the two narratives it is relevant to highlight three overarching similarities between the two. First, the two narratives overwhelmingly support mega projects. Given the lack of physical infrastructure facilities in the country this narrative can be supported as its objective is the removal of major lacunae in sectors traditionally provided by the state that are derailing the country’s growth rate, limiting the economy’s capacity to create jobs for the ever rising numbers entering the job market and deteriorating the quality of life of the general public. Under the leadership of Nawaz Sharif the party historically focused on building roads (with respect to budgetary allocations under the Public Sector Development Programme) as the way forward at the cost of what many regard as more important physical infrastructure sectors like energy and water (as opposed to social infrastructure). During the party’s current tenure the highest allocation each of the five years of its tenure was on road building followed by energy generation; and within the energy sector the party leadership failed to invest in the outmoded transmission system that was unable to transmit the country’s capacity generation even in 2013, leave alone the additional generation post 2013. Today load shedding is attributed to this very outmoded transmission system accounting for frequent tripping. Additionally, the rising circular energy debt, a reflection of the sustained poor performance of the power sector, continues to rely on hand-outs by the Finance Ministry to enable Pakistan State Oil to import the necessary fuel for electricity generation; the Finance Ministry in turn has failed to put its own house in order due to sustained flawed policies thereby making it increasingly challenging for it to bail out the power sector.

In 2012, the then Ministry of National Food Security and Research federal secretary Ahmed Buksh publicly acknowledged that two-thirds of Pakistan’s water resources were being lost in transmission and seepage and that at least 68 million acre feet of water could be utilized if the canal system was adequately repaired and maintained. This unfortunately has not been the priority for the PML-N government and five years down the line the water shortage has become even more acute than what this government inherited with a resultant negative impact on crop outputs. Additionally, there is a severe shortage of affordable and safe drinking water with an estimated 44 percent of the population without access to drinking water – a commodity that the United Nations regards as a basic human right. In rural areas, 90 percent lack such access which manifests itself by 200,000 children dying each year due to diarrhea-related diseases, as per the Pakistan Council of Research in Water Resources.

Secondly, and perhaps even more disturbingly the PML-N has massively increased the country’s indebtedness – from domestic and international sources. Domestic borrowing rose from around 8 trillion rupees in 2013 to over 16 trillion rupees today while foreign debt rose from 60 billion dollars in 2013 to a little over 90 billion dollars today. And with access to funding from abroad becoming ever more challenging due to failure to implement reforms the PML-N began to borrow from the commercial banking sector abroad – at exorbitant rates of interest with a short term repayment period.

And finally, the modus operandi of the Sharif and now Abbasi-led administration has been to appoint ‘favoured’ loyalists to head their mega projects as well as autonomous entities/organizations for which he/she had neither the requisite qualifications nor experience. It maybe recalled that Nawaz Sharif was legitimately critical of the Pakistan Peoples Party’s using state owned entities (SOEs) as recruitment centres for its grass-root supporters but by placing the party’s own unqualified loyalists to head these entities; an example is the higher losses in Pakistan International Airlines today than during the PPP-led government’s tenure. And Pakistan Steel Mills continues to be a drain on the taxpayers with periodic budgetary injections to pay for salaries even though the Mills have been dysfunctional for many years now.

So what are the major differences between the two narratives? One of course is the insistence by Nawaz Sharif, to some extent delusional, that the markets reacted very badly to his disqualification for life, leading to a poor business environment. While not openly contradicting Sharif, Abbasi presented a growth rate of 5.8 percent for the current year – higher than during the four years of the Sharif administration while Shahbaz Sharif claims that development as well as his mega projects in Punjab, rival no other province. The Overseas Investors Chambers of Commerce and Industry’s six month survey on business confidence index revealed that manufacturing sector’s confidence was stable at 15 percent, rose for services sector at 23 percent (compared to 15 percent six months earlier) while wholesalers and retailers registered a decline to positive 6 percent compared to positive 40 percent six months ago.

Be that as it may, Nawaz Sharif continues to emphasize negatives subsequent to his disqualification by the apex court on 28 July 2017: negative major macroeconomic indicators particularly the widening current account deficit, and a slowdown in the pace of infrastructure development. This narrative has not been endorsed by Abbasi and Miftah Ismail, the Finance Minister, who insist that the state of the economy is not a source of concern, that infrastructure development is moving forward at an unprecedented pace in the country’s history though they dutifully attribute this to Nawaz Sharif’s leadership and cite the country’s stable rating by credit agencies as well as favourable articles published in some foreign media outlets as proof positive that everything is hunky dory.

One major point of difference in the narratives however is with respect to the rupee value. Nawaz Sharif and Dar maintained that a strong rupees (even if grossly overvalued) is a reflection of a stable economy, a view not backed by economic theory; while Abbasi and his Finance Minister have depreciated the currency twice (estimated at around 9 percent) – once in December soon after the International Monetary Fund mission, and the second time in March 2018 as the trade deficit and the consequent current account deficit continued to widen putting pressure on the currency. Ismail stated a month ago that the rupee would stabilize at around 115 to the dollar but its continued depreciation indicates the: (i) rupee remains over valued; and (ii) limitations of the State Bank of Pakistan in sustaining its value as foreign exchange reserves continue to decline.

The next government has its work cut out for it but it must begin its tenure, within the first week if not sooner, by first and foremost granting complete autonomy to the Pakistan Bureau of Statistics so that it has realistic data to work with (including actual FBR collections for 2017-18, borrowings, and actual expenditure incurred by the PML-N till the end of its term). All other decisions must follow this decision as the scale and extent of data fudging rose to unprecedented levels during the tenure of Ishaq Dar and reports indicate that Ismail outdid his predecessor in this regard.