Senate, politics and IMF programme

Senate, politics and IMF programme

Hasaan Khawar March 09, 2021
The writer is a public policy expert and an honorary Fellow of Consortium for Development Policy Research. He tweets @hasaankhawar

A vote of confidence from the National Assembly has calmed the nerves of those who were fearing a political turmoil. But those with their hand on the economic pulse are still nervous. They are worried about the uncertain future of Pakistan’s economic czar, Dr Hafeez Shaikh, and possible derailment of the IMF programme.

On the political chessboard, the next challenge is the election of chairman Senate. Given the numbers in the upper house, Yousaf Raza Gilani stands a good chance to win. An opposition-ruled Senate can potentially disrupt the government’s economic reform agenda.

Firstly, on Hafeez Shaikh’s future as Finance Minister, the constitutional provisions and court rulings are quite clear. As per Article 91(9) of the Constitution, he can only remain the Finance Minister for six months without getting elected to the parliament. He can therefore only continue till June 11, 2021, barely enough to present the next budget in the Assembly.

While he can continue thereafter as the Advisor on Finance, he won’t be able to head either the National Finance Commission (as per Article 185), or the Economic Coordination Committee, as per the ruling of Islamabad High Court. The Prime Minister will either have to head these bodies himself or appoint a new finance minister. Considering that PM has asked Dr Shaikh to continue, chances are that very soon the government will find him another slot in the National Assembly or Senate.

The second issue is the IMF programme. In February, Pakistan reached a staff-level agreement, which is now awaiting approval from IMF’s Executive Board. Pakistan has agreed to a number of reforms, some of which are prior actions for the release of the next tranche. These include increase in electricity prices, development of a circular debt management plan, changes in the NEPRA Act and elimination of tax exemptions. The electricity prices have been increased once, and are expected to see another increase in the next few months. The circular debt management plan is near finalisation and will soon be approved by the cabinet. Removal of 80 tax exemptions have been approved by the PM and will soon be presented to the National Assembly, where the ruling party has a clear majority.

But the trickiest bit is the NEPRA Act amendments. The proposed changes will empower NEPRA to determine and notify quarterly tariffs, ensure timely submissions of petitions by DISCOs, eliminate the gap between regular annual tariff determination and notification by the government and reinstate the power of the government to levy surcharges. In simple words, the government will lose its discretion to delay or avoid passing on the cost of inefficiencies and subsidies to the public, to prevent accumulation of circular debt.

There is no incentive for the opposition to agree to these necessary yet unpopular changes. An opposition-controlled Senate will therefore be the biggest obstacle to approval of these amendments as well as subsequent changes in the OGRA and SBP laws.

To deal with this, the government will have the following options: first, to go through a presidential ordinance which will be temporary and not acceptable to the IMF; second, to indirectly use the establishment’s influence which would need a quid pro quo. The third could be to call a joint session of the two houses under Article 70 of the Constitution, which would solve the problem but with a delay. The fourth could be to engage with the opposition, which seems unlikely and the last could be to go back to IMF and renegotiate, which seems off the table.

In the short run, the government may therefore have to go with a joint session approach, but in the longer run, it will need to resort to political engagement and dialogue to build consensus around key economic reforms.

Published in The Express Tribune, March 9th, 2021.

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