Crunch time

Imran Khan, having lost power, has adopted a strategy of delegitimizing institutions of the state including the Supreme Court of Pakistan, the Election Commission of Pakistan and the military establishment. The next step in this strategy will be to undermine the administrative capacity of the state. Lo and behold, Pakistan desperately needs political stability.

The PTI government has left behind Pakistan’s highest-ever budget deficit and the highest-ever trade deficit. The SBP’s liquid foreign exchange reserves have come down from $20 billion in August 2021 to $10.5 billion – barely enough for five weeks of imports. In the four weeks of March, reserves were down a hefty $5 billion. In April 2022, Wholesale Price Index (WPI) increased by a whopping 28 percent year-on-year.

Crunch time ahead. The new government would have to do three things: increase the price of petrol; increase the price of electricity and depreciate the rupee. When the price of petrol and diesel will cross the Rs200-a-liter mark, the price of everything else will follow suit. Petrol up, inflation up and the rate of interest also goes up. Imagine, the government is now borrowing at 15 percent. When the rate of interest goes up the economy slows down and when the economy slows down unemployment goes up – that’s the vicious cycle we are in.

Bad news (my prediction): the government will not be able to control the inflationary spiral. Good news: a PML-N led government has, historically, been able to fetch a better rate of economic growth which results in an increase in per capita income. That’s the only saving grace – an increase in the per capita income will, hopefully, enable us to bear a higher rate of inflation.

Pakistan’s current economic model has five components: cartels, subsidies, amnesties, low value exports and import restrictions. This model has in the past failed to deliver equitable economic growth. The PML-N’s growth model – hard infrastructure development, an overvalued rupee and domestic consumption – will not work. What we need is rapid, sustained and equitable economic growth. What we need is a new economic growth framework.

The new PML-N led coalition government is up against challenges that no previous Pakistani government has faced. In the next seven to eight weeks, the new government would have to raise roughly $9 billion to service debt and finance the current account deficit. The new government would have to come up with an ‘emergency economic stabilization framework’ plus a ‘structural reform plan’ without which the IMF’s Board will not be willing to disburse real dollars. Not to forget that the United States has 831,401 votes at the IMF Board.

Pakistan is passing through two simultaneous realignments: internal political realignment and an external geopolitical realignment. Politics within has turned personal. Politics within is becoming deadly. Unfortunately, in the midst of this serious elite power struggle no one is looking at bettering Pakistan. At this time, more than ever before, Pakistan needs political stability. We now have to choose our poison – bury this political instability or bury economic growth. The two, political instability and economic growth, cannot coexist.

The writer is a columnist based in Islamabad. He tweets @saleemfarrukh and can be reached at: farrukh15@hotmail.com