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Monday July 04, 2022

Tougher times ahead

May 29, 2022

Bad politics is bound to end in bad economics. Zero-sum is a situation in game theory in which former PM Imran Khan’s gain is equivalent to PM Shehbaz Sharif’s loss – and vice versa. The bottom line: the net change in wealth or benefit to 230 million Pakistanis is either zero or negative.

A hybrid is “a person or group of persons produced by the interaction or crossbreeding of two unlike cultures, traditions, etc.” In Pakistan’s case, every institution of the state has barged into the domain of some other institution of the state – and forgotten its own.

There has already been a bloodbath at the Pakistan Stock Exchange where the capitalization is down by a trillion rupees. The Pakistani rupee has already lost Rs25 in the past seven weeks. The budgetary deficit is about to hit the Rs5 trillion mark. The trade deficit is about to hit the $45 billion mark. The Wholesale Price Index (WPI) has already hit 28 per cent. The SBP has $10 billion left barely enough to cover 4 weeks of imports.

The circular debt at the state-owned Pakistan State Oil (PSO), which controls 60 per cent of the total oil market, has now hit a trillion rupees. Pakistan’s country risk is going through the roof (country risk “refers to the uncertainty associated with investing in a particular country”). Global banks have now stopped trade credit for oil imports (that means shortage of petrol, diesel and load-shedding).

Four things are yet to happen: the price of petrol and diesel is yet to go up by an additional 30 per cent; the rate of interest is yet to go up by three to four percentage points; the price of electricity is yet to see a new high and the rate of inflation is yet to hit a new high. As the elite power struggle continues tougher times ahead for the other 230 million, for sure.

There are two main battles going on within Pakistan: an elite power struggle and a battle to grab the right to appoint the next army chief. Imagine political battles in the midst of an unprecedented economic meltdown. According to Bloomberg, “Default threat reaches Pakistan in deepening political crisis.”

Election is not a solution to our problems. We must pay out $4.9 billion before June 30 but no one is prepared to bail us out without the IMF – and the IMF does not want to deal with an interim government. If the National Assembly is dissolved ,Pakistan defaults. If the current government is sent home, Pakistan defaults. We must avoid default – at all costs.

Decades of bad politics have now brought Pakistan to where Pakistan has no good choices left. Tougher times ahead, for sure. The only silver lining is that, historically, under the PML-N government the rate of economic growth rises. Resultantly, per capita income increases and the increase in per capita income adds to our capacity to bear tough times.

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

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