The PTI’s by-election win may carry a hidde3n costt
Political instability is creeping back again, shortly after the sign of stability welcomed in the form of the staff-level agreement with the IMF. The unprecedented victory of PTI in the by-elections of Punjab has revitalized the debate over the power dynamics in the central province, threatening the viability of the coalition government in the Centre.
If the PTI manages to consolidate a majority in the Punjab Assembly, as technically seems inevitable, then the federal government would be deeply disturbed as PTI will hold power in two provinces Punjab being the symbol of intrinsic political power in Pakistan. Thus, the restive state of politics would likely worsen as PTI eyes to dethrone the current Punjab Chief Minister, Hamza Shehbaz, on July 22. It might be good news for the visionary Imran Khan loyalists, yet it could be a knell of doom for the ailing economy of Pakistan.
Just a day after the astonishing result of the by-elections, the Pakistan Stock Exchange (PSX) dropped by 770 points in intra-day trading as investors rushed to book profits and exit the precarious market. The rupee, which recently stabilized against the US dollar, plummeted by almost two percent in a single day – the fastest rate of decline recorded in over two years – to settle at a new record-low of 215.20 against the greenback. Such a debilitating start to the new fiscal year is a bad omen, considering the renewed projections of a global economic recession at the helm of a stronger dollar and skyrocketing energy and food prices around the globe. However, Pakistan could trip into the abyss of bankruptcy long before the recessionary timeline, and not entirely due to autonomous macroeconomic misfortunes.
Pakistan’s economic policies are at the front and centre of this agony. I have continually discussed the poor monetary and fiscal policymaking, totemic to Pakistan, that creates a spiral of dependency around a country, only to become apparent in testing situations, like a pandemic or a commodity crisis catalyzed by a war.
It is our deviant fallacy to rely on imported furnace oil to produce electricity for households and industries. Our policymakers are privy to the benefits and opportunities of coal as an alternative fuel. Yet we continue to spend billions of dollars we cannot afford to squander. It is our own fault that we refuse to focus on improving crude refining capabilities to reap gains, both monetary and in productivity, in the long run. We bypass the structure of responsive policymaking and try to resolve supply-side problems with a frivolous preference for demand-side monetary policy tools like interest rates and money supply.
Our government continues to rely on domestic debt when yields are intractable, adding more weight to the fiscal deficit. And it is our fault that we let our politicians decide inane policies. Policies that are nothing but dilatory tactics to weather the storm in the short run, so they could add a ticker of achievement to their notorious political term, only to leave the country in dire circumstances in the long run.
The so-called “Pakistan Democratic Movement” or PDM, since apparently, an acronym defines the true essence of a campaign has nothing democratic about it! Once a politician enthroned himself as a leader while his obsequious followers chanted his name in parades and rallies. They voted for him in the name of provincial ethnicity and overlooked his blunders and crimes that eventually brought Pakistan on the verge of economic misery.
Then he was conveniently convicted at privilege, escorted to jail (in privilege), and was respectfully flown out of the country, with privilege. Now his brother holds the office of Prime Minister. His nephew controls the reigns in the capital province. And his daughter campaigns for his party in the by-elections.
The sheer irony of this scenario is a blasphemy to democracy. How could we possibly expect a bunch of convicted (and privileged) politicians to bring us through this political and economic dilemma when their survival is not remotely contingent on the survival of Pakistan? Naturally, we should expect the drama we are currently witnessing in the name of democracy. The suffering, however, will always be in the share of the poor of Pakistan.
The middle class is not exactly immune to the throes of economic instability either. As the policy rate is standing at a regional high of 15 percent (the benchmark interest rate in India is 4.9 percent, China 3.9 percent and Bangladesh 4.75 percent, the brunt is faced by the salaried. As the exporting industry suffers from a competitive disadvantage due to the sky-high cost of credit, orders would be shifted to regional rivals, leading to a wave of unemployment and poverty.
The idiotic policy of an import ban is truly a marvel of the incompetent policymakers playing fundamentals to resolve the balance of payments crisis magically. The banned commodities would only save roughly five percent of the import bill which stood at around $80 billion in the outgoing fiscal year. Yet the lack of imported raw materials would exacerbate the difficulty of the manufacturing sector,- further inciting supply-side problems and fuelling supply-side inflation.
The signs of economic contraction are already noticeable. According to the Pakistan Bureau of Statistics, Large Scale Manufacturing (LSM) increased by 11.7 percent from July-May. However, the recent report shows that the LSM output contracted 1.3 percent in May relative to April.
It is due to an unreasonably high policy rate coupled with restrictive capital controls imposed by the State Bank of Pakistan at the directive of the government policymakers. Ultimately, the rapid inflationary pressure would surge in the following months. The central bankers, like always, would again blame the global uncertainty and high international commodity prices as a justification for another sweeping import ban and a sharp rate hike.
I believe we will continue in this spiral as long as our allies continue to loan funds and the IMF continues to support our government. I know I stand in the minority, but it is high time that we let Pakistan take a dive like Sri Lanka. A complete restructuring of both the political and economic frameworks is crucial to the long-term survival of Pakistan.
I’m sure our politicians (and financial gurus) can still swing our country through this crisis and mould an artificial schedule of growth and prosperity. But we need to realize that we are digging a hole, and we probably are in too deep already to return unscathed. Hence, to force a comprehensive reformation, I believe bankruptcy might be the only pill to swallow that could (somehow) redress our faults and actually spell hope for democracy and a chance of economic sustainability.
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