Year of living on the edge

Published December 20, 2021
The writer is a former ambassador to the US, UK & UN.
The writer is a former ambassador to the US, UK & UN.

TRENDS in the outgoing year do not indicate an optimistic outlook for Pakistan’s politics and economy in 2022, when general elections will only be a year away. The political temperature will rise exponentially and the environment will also be more fraught with reinforcement of prevailing trends. The year 2021 saw greater polarisation and divisive politics in the country, mounting tensions between the government and opposition and extremist forces calling the shots in confrontations with the authorities.

The economic challenge intensified. Inflation soared and shortages of essential commodities and services multiplied, especially gas supplies. Financing gaps increased in the government’s budget and the country’s trade account. Delay over an IMF programme eroded business confidence and dampened stock market sentiment. This gloomy scenario was reflected in rising public discontent and concern about the future. A Consumer Confidence Survey by IPSOS, a Paris-based research firm, found 87 per cent of people felt the country was going in the wrong direction in late 2021.

Read more: Most Pakistanis believe country is headed in wrong direction: Ipsos survey

Perhaps the most unedifying aspect of 2021’s raging government-opposition confrontation was how it produced a political discourse in which invective and incendiary rhetoric eclipsed any meaningful discussion of policy issues. Political leaders spent more time vilifying their opponents than articulating their position and how to address the country’s challenges. Those in power seemed to equate government performance with demonising rivals while opposition leaders returned the compliment by using similar tactics. The tone and content of political discourse plunged to new depths of incivility. Bitter polemics and shallow and provocative narratives put paid to any reasoned debate. This evoked public disdain for both sides and degraded the country’s democracy.

Read more: The rising strain in Centre-Sindh relations points to a larger problem

If parliament’s role is deemed to be an important indicator of the health of democracy this too did not inspire much confidence. Parliament was mostly reduced to a rubber stamp by the ruling party with the opposition unable to mount meaningful resistance. The most stunning demonstration came last month when over 30 bills were passed, including an electoral amendment to permit electronic voting machines, without debate and in a matter of just hours. This set a new record for legislating without consensus.

Outgoing year’s trends do not indicate an optimistic outlook for Pakistan’s politics & economy in 2022.

The hybrid political system continued to hold sway with occasional indications of civil-military disagreements. The most significant was over the appointment of the head of Pakistan’s premier intelligence agency. However, it was the overall impact of this arrangement on the polity that had significant implications for both democracy and the army’s reputation. Because the government repeatedly relied on the establishment to cobble together majorities for parliamentary votes and maintain its coalition this prevented it from learning the political skill of managing the legislature, building consensus and accommodating other views. This and other forms of behind-the-scenes political activism by the military weakened its claim of neutrality and undermined its traditional role of arbiter.

The opposition appeared directionless and in disarray for much of the past year. Formed as an alliance of 11 parties, PDM was weakened with the exit of PPP and ANP. It never recovered and its subsequent activities, despite their sound and fury, posed little challenge to the government. The two major opposition parties also offered few solutions to the country’s problems. The biggest party, PML-N was unable to reconcile the ‘divide within’ between two divergent approaches and narratives and decide whether it wanted to pursue a confrontational or conciliatory approach towards the military establishment. It has to resolve this dilemma well ahead of elections.

For the ruling party, Punjab remained its Achilles heel, with a weak and lacklustre provincial leadership unable to provide an effective administration. Its poor management produced internal party discord and contributed significantly to PTI losing political ground in the province — the make-or-break battleground in general elections.

The overall lack of governance at the centre also contributed to political setbacks faced by the ruling party in by-elections. It continued to muddle through and govern unilaterally without a clear direction. Morality lectures rather than focus on policy priorities seemed to increasingly preoccupy its leadership. However, two initiatives by the government that were widely appreciated were expansion of the Ehsaas programme and introduction of the health card in Punjab and KP. Aiming to help the underprivileged, these programmes brought credit to the government.

The most important and consequential issue that dominated 2021 was the deteriorating state of the economy despite a modest recovery following the government’s Covid-related stimulus measures. Political uncertainty and looming elections complicated the economic situation deterring both domestic and foreign investment. Delay in resuming the IMF programme depleted foreign exchange reserves, put pressure on the rupee and eroded market confidence. Inflation became a politically explosive issue, rising significantly for a combination of reasons, including supply side and monetary factors, while unrestrained subsidy schemes also contributed to it.

High inflation is likely to persist undermining the benefit of four per cent growth projected for the coming year. The global dislocation of supply chains will also add to economic difficulties. All this will exact a political cost for a government going into elections. So will prior actions it is obliged to take — although necessary — such as raising electricity tariffs, to access IMF money.

The outgoing year also saw mounting government debt, both internal and external, with public debt rising to over 90pc of GDP. Power sector debt also rose exponentially, compounding the circular debt problem which still awaits meaningful resolution. The fragile macroeconomic situation will continue to be challenging in 2022 with the persistence of negative trends especially a high fiscal deficit, low foreign exchange reserves (due to debt service requirements), growing current account deficit and stagnant private investment levels. The use of bank credit to finance the public sector will continue to crowd out private investment with detrimental effects on the economy.

Once the IMF programme resumes in the coming year it will ease the country’s balance of payments difficulties. But more structural reforms will be needed to unlock funds from other multilateral and bilateral donors. Fiscal vulnerabilities will remain and will have to be carefully managed as will domestic and external risks to the economy in 2022. It will however be the government’s ability to bring down inflation that will be the decisive economic factor in determining its political fortunes with elections approaching.

The writer is a former ambassador to the US, UK & UN.

Published in Dawn, December 20th, 2021

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