AFTER two abortive attempts to get on the adjustment road, we can now say we are on it in earnest. The rupee has fallen from Rs141 to the dollar in the interbank and is now touching Rs154 in some intraday trades, with no end to the slide in sight. Interest rate hikes are also more likely now in the wake of the language used in the latest monetary policy statement.
The critical thing at this juncture is to see how strongly the PTI government owns up to the adjustment and its adverse impacts on the economy. Already popular anxiety has been stoked. We have seen a campaign on social media to ‘boycott the dollar’ and one eager soul found his way to a few minutes of national fame as he burned four one dollar bills before TV cameras. Celebrities and clerics are stepping forward to endorse the ‘boycott the dollar’ campaign, fuelling the hype surrounding it.
WhatsApp groups are abuzz with rumours of another impending freeze of foreign currency accounts (no such thing is being contemplated!) and news of the activation of the Saudi oil facility has been greeted with exuberance. And this is just the tip of the iceberg.
The proprietor of the grocery store around the corner from my house, (who has seen me on TV on a couple of occasions and so makes sure to engage in some political exchange every time I visit) last asked me whether we will survive. When I said yes, he asked whether the government would survive. When I said most likely, he asked whether Imran Khan would survive as prime minister.
You cannot spin inflation, and you cannot plug macroeconomic deficits with emotional appeals.
The situation on the ground is almost red hot now. You cannot spin inflation, and you cannot plug macroeconomic deficits with emotional appeals. It is true that the government did not create this situation, they inherited it. But it is equally true that at the time when they arrived in power and the deficits were growing, the prime minister was busy talking about the dam fund, making emotional appeals for contributions, and then about distributing chickens among the poor, and ‘recovering looted wealth’ to plug these deficits.
Meanwhile, then finance minister Asad Umar famously declared that the deficits have been plugged on the eve of his departure for Bali where he made the first formal approach to the IMF for a loan. If the deficits were plugged, why was he going to the IMF?
The government inherited the situation, but never took it seriously and always believed that it could be addressed through charity, lottery or begging from ‘friendly countries’. And that’s what they did for nine months. In the meantime, the revenue effort flat-lined altogether, the business community duped them into major subsidies and incentives and egged on a devaluation, only to deliver flat export proceeds in return.
Foreign exchange reserves were $9.8 billion in August 2018 when this government came into power. After $3bn borrowed from Saudi Arabia, $2bn from the UAE, $2.2bn from China (among other borrowing), the reserves now stand at $8.8bn.
What happened to all this money? The answer is simple: it was digested in the bowels of the economy’s dysfunctions, leaving us more indebted (domestically and internationally) and even more precariously teetering on the brink of financial insolvency. Meaning the adjustment that was necessary back in September had acquired overriding urgency by May.
Now the government is in a position of digging itself out of a deeper hole where the reserves are concerned, and claw out more taxes in order to bridge the fiscal deficit. Hence, the brutal nature of the ongoing adjustment. It has to make up for lost time while trying to get ahead of a rapidly deteriorating situation.
So how strongly will the government own the adjustment? The anxiety bubbling up from below is fuelling the discourse on the TV screens, where anchors are asking a few main questions. Who is to blame for this situation? How much further is this going to go? Is there another way to do this without as much pain?
But the question Imran Khan should ponder is the one posed by my shopkeeper friend. Providing leadership in times such as these — when the popular mind is frazzled with anxiety and the airwaves are crackling with tension — is a different ballgame altogether from what he has been used to thus far. When people are being crushed beneath the wheels of inflation and unemployment, inspirational speeches and outlandish promises of a glittering tomorrow will not fly.
Imran Khan now has only one choice (politically speaking). He has to step forward and own the adjustment that his government has embarked upon. Not doing so means holding his silence or relegating himself to irrelevance and obscurity, which a prime minister cannot do. He has to speak to the anxieties coursing through the populace, because this is more or less the only thing on people’s minds these days.
But can he own the adjustment? Thus far, none of his senior party people are willing to step forward and talk about inflation and the devaluations. Those who are stepping forward are coming with one of two messages. Either they say ‘this is all Nawaz Sharif’s fault’ or they say ‘there are hoarders driving up the dollar and we will catch them’. There is one thing common to both messages: they give bodily form to otherwise impersonal disembodied economic forces.
The blame game is not a losing narrative to run with under these conditions. Soon people will not care what Nawaz Sharif did, they will ask their rulers ‘what are you doing about it?’ And blaming criminals will not work either, because no amount of law-enforcement action can plug the country’s deficits, any more than the lotteries and charities and the outlandish promises of the fall of 2018 did. Reality has arrived, the rhetoric has to end.
The writer is a member of staff.
Published in Dawn, May 23rd, 2019