No time yet for a hundred indecisions
While the ruling coalition fights for its survival, urgent governance issues have taken a backseat. The present government has never been distinguished for running a clean and efficient administration, but the ongoing standoff with the Supreme Court has inexorably taken its toll.
The country is in dire economic straits and the government, beleaguered from all sides, hardly has the time and the focus to take urgent corrective measures. The political will to make difficult choices and hard decisions is in any case lacking in an election year.
The Memogate saga and the Supreme Court trying to haul the prime minister for contempt of court have sapped the energies of the government to do much else but firefighting. Even the 2008 general elections have been made controversial and the prime minister has been dragged back into the apex court and is fighting for his job.
As a result, the holding of the forthcoming Senate elections has become even more uncertain. Thankfully, the ruling coalition and the opposition have reached a consensus on the 20th Amendment to the constitution.
All this is happening at a time when crucial foreign policy issues also need to be urgently addressed. The forthcoming trilateral summit between Pakistan, Afghanistan and Iran is being held in Islamabad early next week. The US military central command (CENTCOM) chief, General James N Mattis, is due in Islamabad to discuss the new terms of engagement on counter- terrorism between Pakistan and the US. With President Obama taking a personal interest, efforts to renew the severed ties between Washington and Islamabad have escalated.
Having a prime minister facing imminent disqualification and a president engaged 24/7 in firefighting is hardly a suitable environment for Pakistan to extract a best deal in these crucial forthcoming negotiations.
Although we do not need the IMF to spell it out, its just released report card on Pakistan makes depressing reading. The IMF team paints a bleak economic outlook, bluntly declaring that Pakistan’s near and medium-term prospects are “not good”. It states that growth would remain too low to absorb the large number of new entrants into the labour force, inflation would remain high and the external position would weaken significantly.
Implicitly taking note of the government’s inability to make hard choices, the Fund has declared that there are considerable downside risks to this somber baseline in the context of the increasingly fragile global environment. Strongly hinting at the political compromises the government will have to make in an election year, it expresses concerns about “policy weakening” ahead of the Senate elections in 2012 and the parliamentary elections in 2013.
The large fiscal deficit and an accommodative monetary policy being practiced by the State Bank hardly make a recipe for a stable economy. The IMF report feels that such profligate policies have become increasingly unsustainable.
Pakistan’s GDP growth rate is being projected at 3.5 percent for the current financial year, the lowest in the region. The Fund has recommended that the government strengthen public finances through revenue mobilisation and make cuts in wasteful and low-priority expenditure. It has also underscored the need for urgent reforms in the energy sector to reduce power shortages and large untargeted electricity subsidies.
The Fund also wants the government to reduce inflation by implementation of sound economic policies. Asking the government to improve governance is like wishing for the moon. It neither has the political will nor the capacity or the space for reforms.
Pakistan’s tax-to-GDP ratio at 10 percent is one of the lowest in the world. Despite this, across the board, the will to pay more taxes is entirely missing. Neither the politicians nor the businessmen or the bazaar want to pay their due share. A meaningful agriculture tax is an elusive dream in a country where the parliament and the provincial legislatures are dominated by the landed class.
The Fund has recommended to the government to implement the ‘new growth strategy’ devised by our own economic managers. The reforms envisaged under the strategy would entail reducing government intervention in the economy in the key areas of electricity subsidies and agriculture procurement. In the IMF’s view, the current policies have created fertile ground for rent-seeking and corruption.
For a considerably weak coalition government surviving on its wits and compromise with diverse political forces, reforms entailing tightening of belts hardly seem viable. By all indications, the forthcoming budget will be an election budget short on performance but long on promises.
To be fair, even if the government had the will to clean its Augean stables and usher in reforms asking for sacrifices from the populace, it would find it extremely difficult to sell its agenda. In this day and age where a populist media stokes many a fire, the propensity to take to the streets has manifestly increased in virtually all classes making it almost impossible to sell unpalatable decisions.
People are facing hardships not only owing to an economy being in shambles but also because of poor law and order and rampant terrorism. Pakistan is a country hardly accustomed to double-digit inflation. Since 2008, inflation has risen sharply. Owing to the spillover of higher international commodity prices and accommodating domestic policies, it has stubbornly remained in double digits.
According to the staff analysis of the IMF, central bank financing of the fiscal deficit has been an important driver of inflation. Apart from increasing poverty, inflation has also impacted growth. The long-term social consequences of this dire situation are not difficult to imagine.
No rocket science is involved and merely a concerted political will and an empowered economic team are needed to fix the economy. We have had four finance ministers in as many years. Apart from Ishaq Dar and Naveed Qamar who were politicians, former finance minister Shaukat Tareen was ushered in as the economic advisor as a technocrat. He left in disgust. Dr Hafeez Sheikh and his team are hanging on but are hardly able to sell their recipes.
In this context, the tiff with Washington in the aftermath of the Salala incident could not have come at a worse time. Pakistan needs direct inflows of aid as well as political support to wade through this difficult period.
The present economic malaise and fragile political dispensation can deteriorate into an anarchic situation much beyond the control of political players. In such a state where the system is threatened from all sides, supremacy of the parliament and independence of courts and even elections could merely become an academic exercise in the ultimate analysis.
The writer is Editor, Pakistan Today