Financial emergency

Ex-PM Imran Khan’s current political narrative is all about a ‘civil war’. PM Shehbaz Sharif’s current political narrative is all about ‘economics’. The two narratives – that of ex-PM Imran Khan and PM Shehbaz Sharif – cannot coexist. One of the two narratives will have to be buried a few feet under the ground. Choose your poison – bury the narrative of a ‘civil war’ or bury the ‘economy’.

Ex-PM Imran Khan’s current political narrative rests on two pillars: a totally fabricated ‘American conspiracy’ and weaponization of social media. His political strategy is all about ‘delegitimizing state institutions’ (including the army, the Election Commission of Pakistan and the judiciary), undermining the state’s administrative capacity– and eventually seizing political control. The PTI government has left behind a budgetary deficit approaching Rs5,000 billion-the biggest budget deficit in Pakistan's 75-year economic history. The PTI government has left behind a trade deficit approaching $50 billion-the biggest budget deficit in Pakistan's 75-year economic history.

In the next six weeks, we need $4 billion for debt servicing and an equal amount to cover our current account deficit. Saudi Arabia is looking towards the IMF. The UAE is looking towards the IMF. The Asian Development Bank is looking towards the IMF. Yes, the IMF is looking towards Washington. And as the IMF awaits a signal from Washington Imran Khan is spreading his manufactured, weaponized American conspiracy narrative. Red alert: in the next 12 months, our gross external financing requirement stands at $32 billion. On April 12, Sri Lanka defaulted on its external debt obligations. The Sri Lankan rupee plunged to a historical low. There’s shortage of food, shortage of diesel and shortage of life saving drugs. There’s seven-hour loadshedding, food quotas and petroleum quotas. On May 9, country-wide social unrest turned violent. The same day the prime minister resigned, troops were deployed, a country-wide curfew was imposed and shoot-to-kill orders were given.

Imagine if the Pakistani rupee were to plunge to Rs250-to-a-dollar. Imagine when diesel will cost Rs250 per liter. Continued political instability will result in serious consequences. Political conflict has both short and long-term impact on economic activity. A serious episode of political conflict has both supply-side and demand-side contractions that last for a couple of years. Consumption goes down so does the volume of ‘services’ and manufacturing activity. GDP can drop a full percentage point as a consequence of just one serious political incident-a potential loss of $30 billion for us.

Election is not the solution to our problems because the IMF will not deal with an interim government. And without the IMF we are heading straight into a sovereign default – a default followed by shortage of petrol, diesel, load-shedding and a nose-dive of the rupee. That could result in social unrest – and worse. Do we really want a sovereign default first and then election? Yes, we still have time to turn the economy around. The ‘civil war’ narrative must first be put to rest followed by cutting subsidies on diesel, reviving the IMF programme, developing a sustainable debt plan, structural reforms and privatization. We are truly in a state of financial emergency – a “serious, unexpected, and often dangerous situation requiring immediate action.”

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