IN a recent talk with Dawn, Finance Minister Ishaq Dar said that the government is gearing up to announce the budget by the end of May, and took some pride in pointing out that no government in the recent past had managed to make such an early announcement in order to give time to parliament to deliberate on the details. But given the political situation shaping up in the aftermath of the Supreme Court verdict, it is worth thinking about the impact that the government’s embattled position will have on the priorities around which the budget will be built. Even before the verdict, the government had increasingly swiveled towards a populist line in its economic policy through a series of steps, from lifting the moratorium on new gas connections to announcing a generous new Haj policy. As a consequence, the fiscal deficit target for the current year has already been blown. At a time when the fiscal balance is already under stress, coming in 0.8 per cent of the GDP higher in the first half of the fiscal year compared to the last year, the risk of the political uncertainty spilling over into economic policy is now magnified.

In the last year of the previous government, a strikingly similar situation was created. An isolated and embattled government struggled to manage a deteriorating economic situation, leading to plummeting reserves and rising fiscal deficit, which eventually led to a spike in the circular debt and large-scale, prolonged power outages. The risks to the economy are considerable, since an embattled government is less likely to maintain the discipline that is needed at a crucial juncture as the country approaches a general election. Going forward, as uncertainty tightens its grip on the government, the temptation to use populist measures to regain some support, as well as the crippling of strategic decision-making capability, can exact a terrible cost and possibly unravel the moment of hard-earned macroeconomic stability that has been achieved over the past three years.

It is impossible to see how a disciplined budget can be drawn up in the environment that is being created. The previous two governments, that of the PPP and the Musharraf regime, both presented their last budgets amid thunderous opposition and in a cacophonous assembly. Now it looks like the PML-N, which had prided itself on its economic achievements, is set to repeat that history. Even after the budget has been drawn up and announced, the task of implementing its provisions and keeping a focus on the targets contained in it will be a serious challenge, unless the ruling party can by some miracle claw back some of its credibility. Surviving the political headwinds is not its only task from here on. Keeping the ship of state on an even keel through it all will be the real challenge.

Published in Dawn, April 24th, 2017