THESE are tough times for the economy, as Pakistan experiences one of the most serious political crises it has faced in recent years.
Protesters belonging to Imran Khan’s Pakistan Tehrik-i-Insaf and Dr Tahirul Qadri’s Pakistan Awami Tehrik have converged on Islamabad to topple the fledgling government of Prime Minister Nawaz Sharif, bringing economic decision-making to a virtual halt.
The two leaders have refused to return home without the resignation of the prime minister and the formation of a neutral government to reform the election commission, before holding re-elections.
‘It is not that everything is lost. We can still redeem what we have lost over the past one month if political uncertainty created by the protests dissipates without any further delay’
It is hard to calculate the tangible economic losses caused by the protests, which saw the government lock down the entire Punjab earlier this month to prevent the protesters from reaching Lahore from the rest of the province and then march on to the capital.
Small- to medium-sized factories in cities like Gujranwala, Gujrat, Sheikhupura and elsewhere had to be shut down because of disruption in the raw material supply chain.
Exporters, especially textile and clothing producers, couldn’t ship their orders on time, as the government seized tens of shipping containers to block off the highways for almost a week. Some of them missed their shipping deadlines, while others were barely able to meet them.
Finance Minister Ishaq Dar claimed on Friday that the economy had lost Rs450bn because of volatility in the capital markets and pressure on the exchange rate owing to the political turmoil.
Though businessmen say Imran Khan’s call for civil disobedience has been ignored by the people, a drop in production and exports could cut into federal tax revenues, making it even more difficult for the Federal Board of Revenue to meet the unrealistic tax target of Rs2.8trn for the present financial year.
The intangible losses to the economy are said by businessmen and analysts to be much higher than tangible losses. The IMF left the fourth review of its $6.7bn loan programme incomplete, perhaps to buy itself time to see how politics unfolds in the country in the coming days and weeks.
Many suspect further delays in the implementation of economic reforms, as the government’s focus will remain on tackling the opposition’s challenge for quite some time, even if it successfully rides out of the current political storm.
“The continuing protest and political uncertainty arising from it has done an incalculable damage to the economy,” argued a leading businessman believed to have unhindered access to the Sharif family. “We are back to square one; all the gains made in the last one year have been wiped out. Nobody is now talking about the energy crunch, jobs and investment. It is a very unfortunate situation.”
Others largely agree. “It is not that everything is lost. We can still redeem what we have lost over the past one month if political uncertainty created by the protests dissipates without any further delay,” said a textile producer who declined to give his name as he did not want to look siding with one political party over the other.
“In case the standoff in Islamabad lingers and spreads to the rest of the country, it would cause lasting damage to the economy. The markets are already nervous,” warned a stock broker.
“Investor confidence is low and businesses are not making profits. The momentum of growth achieved by the industry in the first half of the last fiscal year was lost in the second half for a variety of reasons: exchange rate appreciation, increase in electricity prices, high credit cost etc. The current political impasse has further dampened the market,” he said.
He warned that the government would not be able to meet any of its budgetary targets if the political deadlock is not resolved in the next few days.
“Foreign direct investment was down 80pc in July; the current account deficit swelled from $125m to over $400m, and the FBR’s collection remained behind target. With the rupee weakening and the investors losing their appetite in the wake of the crisis, how can the government be expected to even get close to its growth, fiscal and other budgetary targets at the end of the year,” he wondered.
Some economists argue that “The urban middle classes are under huge stress owing to the economic slowdown, inflation, job cuts, erosion in real wages and deterioration in public service delivery. If they are angry and out on the streets protesting, it is because they are not satisfied with the way the country is being governed and the economy being managed; the protesters have some economic aspirations that the government has failed to meet,” a political economist teaching at a university in Lahore said.
Published in Dawn, Economic & Business, August 25th, 2014