Political cost of economic management

Fixing Pakistan’s economic woes requires massive structural reforms


Farhan Zaheer May 07, 2022
The writer is PhD candidate in Political Science at Heidelberg University. He can be reached at Farhanzaheer5@gmail.com and tweets @farhanzaheer5

With Prime Minister Shehbaz Sharif now in the saddle, the looming question is: how is Shehbaz’s government going to handle the economy? How, if at all, will Shehbaz’s economic handling be any better than Imran Khan’s? The extension of the IMF programme by one year and an increase in the loan size to $8 billion have been good starting points for the incumbent government as they are expected to allow the new economic managers to focus on the pressing issues related to the economy. But does this mean that all is well? Well, that’s certainly not enough for a government faced with insurmountable challenges in the shape of ballooning public debt, unmanageable current account and budget deficits, extremely low tax-to-GDP ratio, ever-weakening rupee, stagnant exports, the double-digit demon of inflation, etc.

The ongoing debate of whether the government should continue subsidising petroleum products has already created a political headache for Shehbaz’s government. On the one hand, the new government cannot afford to antagonise the IMF by continuing to offer subsidy on the sale of petroleum products. On the other hand, it cannot take the risk of withdrawing the subsidy immediately as it will sure have to face the public backlash, which would mean losing a huge amount of political capital. Economic sense says that a cash-strapped government does not have the capacity to shoulder a heavy financial burden of fuel subsidies given the fact that it is itself buying expensive oil from the international market. However, a common voter neither knows how the international oil market works nor does he care about the widening current account deficit. All he needs is fuel at affordable rates, and that’s it. At least for now, Prime Minister Shehbaz has decided to continue giving subsidies on petroleum products — something that is costing the exchequer around Rs90 billion a month. This clearly shows that politics has taken precedence over the economy.

Other myriad challenges imply that so long as this government stays in power, it will remain stuck in fire-fighting. One such challenge that is already turning into a big embarrassment for the new government is the massive increase in loadshedding of electricity in the country. The situation is unlikely to improve in in the near term, as the upcoming months of June, July and August will be even hotter which will further increase the demand of electricity in the country. Even though the Prime Minister has ordered re-operationalising all non-functional power plants, it carries quite a cost: producing electricity through furnace oil is the most expensive. And this comes at a time when circular debt in the electricity sector is standing at a staggering Rs2.5 trillion and there are no signs that it can be controlled by any short-term fire-fighting.

That PM Shehbaz is heading a broad-based coalition government means that he needs consensus on so many decisions not only on the political front but also on the economic one. Right since leaving the Prime Minister Office, Imran Khan has been successful in putting sustained pressure on the new government through mass mobilisation. Feeling the heat of public outpouring in support of PTI, the coalition government is left with no other option but to take popular decisions — though at the cost of economic interests of the country. Fixing Pakistan’s economic woes requires massive structural reforms which is a tall order for a coalition government whose mandate cannot stretch beyond a year and a half. The country needs a full-term elected government with an unwavering political will to take the long-entrenched economic problems head-on otherwise the economy will continue to bleed.

Published in The Express Tribune, May 7th, 2022.

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