The incumbent government has no choice but to go for fiscal tightening, tax harmonisation and removal of subsidies
overnments around the world take responsibility for providing an enabling environment where individuals, institutions and businesses can flourish and explore various avenues to prosper. Among other things, this includes providing food and shelter, access to health care, education, infrastructure facilities and, above all, a peaceful and secure atmosphere that can ensure growth and stability for all stakeholders.
Pakistan has a long history of disruptions both on the internal and external fronts. Internally, the urban-rural divide has existed since its inception. The ethnic divide emerged later. With the passage of time, extensive fragmentation has taken place in the name of religion and politics.
Polarisation in the society has already assumed alarming proportions. People are becoming more intolerant and rigid in their social, religious and political beliefs. Several political parties are confined to specific ethnic and geographical domains. The acceptance of diversity and forbearance are fast fading out. On the political front, many parties are focusing more on agitation than solving the issues faced by ordinary citizens through available means.
Over the last decade, Pakistan has witnessed a horrifying trend of long marches and sit-ins. From small groups to mainstream political parties, everyone has tried to dictate terms by exploiting the strength of people supporting them. Recently, the coalition government led by Pakistan Tehreek-i-Insaf (PTI) was ousted through a constitutionally valid mechanism—the vote of no-confidence under Article 95 of the constitution. The opposition parties redefined political partnerships and gained confidence of most of the National Assembly members. Accordingly, Imran Khan lost the legal mandate to govern the country as its prime minister.
However, the former star cricketer, failed to demonstrate sportsmanship. Back in 2013, he had done the same after losing the general elections. In 2014, Imran Khan and his party had disrupted the visit of the Chinese president that was aimed at consolidating the landmark China-Pakistan Economic Corridor (CPEC) initiative.
The political chaos created by the PTI caused a setback to the important initiative and brought a bad name to Pakistan. Even after the sit-in was over, the PTI continued to call for agitation, rather than playing its role in the parliament. The PTI was on the streets creating more problems for the government in general and the economy in particular. Imran Khan also boycotted the joint session of the parliament convened in honour of Turkish president, and later a session on the Kashmir issue.
This behaviour continued even after the PTI took over power in the aftermath of the shady 2018 elections. The focus remained on victimising political opponents in the name of accountability, rather than achieving political and economic stability.
Despite the party’s manifesto of transforming governance and promoting economic growth, he miserably failed to contribute anything positive towards these goals. He ended up taking the country to its highest ranking in history on the corruption perception index. During his reign, abuse of state institutions was at its worst. This was made evident by the statement of a former head of the Federal Investigation Authority and several judgments of Supreme Court in cases filed by the National Accountability Bureau.
Polarisation in the society has already assumed alarming proportions. People are becoming more intolerant and rigid in their social, religious and political beliefs. Several political parties are confined to specific ethnic and geographical domains.
On the economic front, the PTI government failed to surpass the GDP growth record of the Pakistan Muslim League - Nawaz government that had faced continuous agitations by the PTI and the Tehreek-i-Labbaik Pakistan, and frequent interference by then chief justice of Pakistan. The PTI government failed to sustain the GDP growth. In fact, negative growth of 0.94 percent was recorded in 2020. Despite revising the base, projected GDP for the current fiscal year (FY) is about 5.97 percent.
Growth in national debt was abnormal during the four years of the PTI government. The domestic debt rose to Rs 28 trillion as compared to Rs 17 trillion till June 2018, registering an increase of 65 percent in just four years. The external debt rose to $128.92 billion from $95.24 billion in June 2018. Ill-directed policies of the PTI government, despite adding unprecedented debt burden, failed to add enough to the national exchequer or curb the current account deficit, projected to be around $20 billion by the end of June 2022.
Because of the PTI government’s reckless borrowing, foreign lenders have a greater influence today on our economic decision-making than ever before. They are now dictating the new government on both transactional and strategic matters – from determining oil and electricity prices to the imposition of taxes. The unwise economic decisions during the PTI rule have pushed the country to double-digit inflation, hike in POL and electricity prices and a downward trend in growth due to heavy indirect taxes.
It is due to the PTI’s overall failure that the present coalition government is facing the uphill task of meeting the fiscal deficit, expected to be over Rs 5,500 billion for the current financial year. It is desperately looking for financial support from the International Monetary Funds (IMF) and some friendly countries. A fresh deal with the IMF is not possible without a removal of the subsidies agreed by Shaukat Tarin and Raza Baqir in February.
Another factor that has contributed to the deteriorating economic situation is the devaluation of the rupee. In the last four years, it has devalued by more than 60 percent. This devaluation has increased the cost of doing business. If the IMF does not lend financial support immediately the stress will increase further.
It is clear that the erratic policies of the PTI government have resulted in our economy facing multi-dimensional challenges both on local and foreign fronts. The power sector circular debt alone has increased from Rs 1.1 trillion in June 2018 to Rs 2.5 trillion in April 2022.
The incumbent government has no choice but to go for fiscal tightening, tax harmonisation and removing subsidies that will directly affect an overwhelming majority of Pakistanis. We are going to witness historic high deficits—fiscal, current and trade—coupled with horrifying debt burdens. This makes the resumption of the IMF programme imperative.
Having created a deadly mess, the PTI is once again on the streets, adding further to political instability. The political shenanigans of the PTI chief are sending out negative signals to investors. A credible threat to close main cities will halt economic activity, imposing a heavy cost on businesses, the poor and those having fixed incomes.
The 2014 call for Azadi March cost around Rs 149 million in maintenance of law and order in the capital city alone. This did not account for the sufferings borne by the businesses and the citizens. The PTI leadership must be held accountable for their actions. However, it appears that the government led by Shahbaz Sharif lacks the commitment/ mandate to do so. Those who matter in the land must realise that political stability is a prerequisite for economic wellbeing.
Abdul Rauf Shakoori is a corporate lawyer based in the USA. Dr Ikramul Haq, Advocate Supreme Court, is adjunct faculty at Lahore University of Management Sciences (LUMS)