The next election is not that far
People may have doubts about Nawaz’s ability to influence security policy, foreign policy, regional policy, and neighbour-policy, but nobody has (yet) accused any branch of the establishment of interfering with economic policy. Finance may, in fact, be the only ministry with a dedicated minister over which the prime minister has overriding control. Yet strangely N’s ability to influence the economy, too, has been limited.
That doesn’t stop him from praising Dar sb’s handling of the ministry, though, especially since the donors are happy. But therein lies the main problem. The IMF was also happy last week, when it disbursed the latest $504.8 million grant. Everybody, especially in government, noted that the Fund liked the government’s economic policies, etc. But few, if any, noted that, once again, the government’s only success during the negotiations was to get the donor to agree to waivers regarding deficit and debt.
That means that just as it has been throughout this arrangement with the Fund, Pakistan has been unable to keep the deficit in check. It also means that the government has continued to borrow from the money market – local and international – even for its day-to-day functioning. That, in a nutshell, simply means that the country is unable to earn enough to afford its own expenses. And that means trouble not long down the road; next year, for example, when the IMF program runs out.
The tax initiative never got off the ground. Probably just like before, and just like every other government, government bigwigs found too many of their House colleagues fellow non-filers
People tend to have short memories in Pakistani politics, but surely N remembers how he championed the revenue cause at the time of the general election campaign. Successive governments have just not had the political will to net tax evaders, he roared, something that he would finally change. Exports were long neglected, as was manufacturing; hence little or no value addition in exports. He also mentioned the power and security crises in considerable detail. Both, eventually, harmed the economy. He promised getting a handle on them too.
But half way through the present cycle, he has little to write home about. True, security is much improved, but few in the ruling party even publically take credit for it anymore. In fact, had it not been for Gen Sharif forcing Zarb-e-Azb through, perhaps N would still have preferred to talk to TTP. On other promises, unfortunately, the prime minister cuts a sorry figure so far.
The tax initiative never got off the ground. Probably just like before, and just like every other government, government bigwigs found too many of their House colleagues fellow non-filers. And that was the end of the matter. All one hears about taxes now is an incompetent attempt to shove withholding tax down throats of traders who would rather choke the market infinitely than pay their fair share.
Exports, too, have been a non-starter. For decades the export basket has not moved beyond traditional agri-produce and cotton products. In the latter, especially, regional economics – less well endowed naturally – have already overrun Pakistani export markets. And, of course, there has been zero effort towards adding value to exports. Imports, especially luxury items, on the other hand, continue to register a healthy upward trajectory.
And the less said about the power sector, the better. Again, those with slightly longer memories will recall Shehbaz Sharif’s six-month promise. Yet all that happened was a mysterious one-time lump sum payment of the Rs500b circular debt – with no names named and no audit – which turned out an expensive exercise in futility. In no time the debt is almost back to the same level, with no explanation.
With low tax earning, unimpressive export outreach, and a chronic power crisis, it is little surprise that Islamabad has to plead repeated revisions of deficit and debt targets with the Fund. The ruling party has tried its usual bag of tricks to influence public opinion, but such exercises are no longer working. For example, Dar sb got his Saudi friends to park a billion odd in state bank vaults to prop up the currency, then sold rupee strength as the outcome of comprehensive monetary policy (even though the finance ministry has little to do with the money market).
Most people fail to appreciate lower inflation or higher rupee because neither seems making much of an impact on the real economy
The government also followed the international Brent collapse by reducing domestic prices at the time of the dharna agitation, then waxed eloquent about holding people’s inflation concerns close to heart. It is riding that same input price decline, and subsequent low CPI, as the outcome of a proper policy framework, not just some exogenous windfall. It has also counted on its own obsession with mega projects to keep the public attracted at least until the next general election.
That, however, is not happening. Most people fail to appreciate lower inflation or higher rupee because neither seems making much of an impact on the real economy. Employment continues to be week. That means fewer people are earning now than before, which means a greater strain on the national economy which, unfortunately is not generating enough revenue to support itself, much less jobless people.
Bagging another tranche out of the IMF is one thing. They will get paid back with ridiculous interest. But selling a bankrupt economy, devoid of vision, to a suffering electorate is quite another. N may not give it much thought now, but he can’t afford such an economy going into the next election.
