We are living in a multiverse of political madness these days where the credibility of the PML-N coalition has been severely hit because of its inability to take politically unpopular decisions needed to repair the country’s worsening finances and economy. More than six weeks after the coalition partners decided to dive into the Darkhold’s pages to stay relevant to their electorate and the powers that be by fixing the country’s finances and pulling the economy out of quicksand, the government of Prime Minister Shehbaz Sharif is paralysed by its indecisions and difference of opinion among the member parties on its political and economic strategy.

Consequently, the currency and capital markets are in a tailspin due to growing concerns over exacerbating economic fundamentals and a worrisome near term outlook caused by delays in policy decisions to deal with existential challenges facing Pakistan.

The policy paralysis is not only a manifestation of the disagreement between the coalition components, especially between the two major member parties — PML-N and PPP — on important political and economic decisions that are required to be made urgently. It also indicates deep differences within the PML-N on what economic and political strategy it should pursue given the magnitude of the economic and financial crises.

Consequently, every action and inaction of the prime minister and his finance team is being second-guessed by the party leadership living in self-exile in London. On top of that, we have former prime minister Imran Khan and his party on the road with the anti-American and accountability narratives, threatening to raid Islamabad later this month to get an early election.

Every action and inaction of the prime minister and his finance team is being second-guessed by the party leadership in London while Imran Khan and his party are on the road with the anti-American and accountability narratives, threatening to raid Islamabad later this month to get an early election

On the side is the powerful military establishment, asking politicians to clean up its mess and refrain from dragging it into politics. Hence, we find Shehbaz Sharif and other key PML-N leaders in London for ‘consultations’ with their leader Nawaz Sharif for the last few days.

With the PML-N leadership tight-lipped on the outcome of their ongoing London consultations, we know little about what might or might not have transpired at the meeting barring a statement from defence minister Khawaja Asif on Friday that the ‘government would take the people of Pakistan into confidence over the next 48 hours after taking allies on board’. “Until all of [our allies] are on board, we will not be able to reach a final decision,” he said.

Some reports quoting anonymous sources, however, claim the PML-N leadership had decided to either increase the energy prices or pass the reins to an interim setup (for an early election). Do they have a third option?

Nawaz Sharif is believed to be opposed to the idea of raising prices because of its political fallout and supports early elections. His daughter Maryam has repeatedly favoured new elections, saying the PML-N should not take the blame for the economic mess of the Imran Khan government by raising the frozen energy prices and leave the tough decision for the caretaker set up to take. Yet, many PML-N leaders are reported to be of the view that Nawaz Sharif must return home to lead the party into the fresh polls even from his prison cell if the leadership decides to ‘cut losses and run’.

The PPP is also clearly opposed to the idea of early elections without fresh electoral reforms to undo the changes made unilaterally by the previous government in the election laws to gain an edge over its political opponents and ‘defanging’ the controversial accountability watchdog, National Accountability Bureau that was extensively used in the past to engineer the 2018 vote. How credible these legislations would be in the absence of the PTI from the parliamentary debate on them is anyone’s guess. More importantly, without mending the economy, can these reforms help the coalition parties win the next elections?

Should the coalition decide not to go for a fresh mandate, it will be required to come up with a credible strategy to handle the current economic and financial crises and make tough and unpopular decisions. The most crucial will be to reverse the fiscally unsustainable energy subsidies right away to meet the first ‘prior action’ to get stalled International Monetary Fund (IMF) funding.

Will the prime minister and his team have the ‘blessings’ of Nawaz Sharif and Ishaq Dar for swallowing the bitter pill? With Mr Dar, who is opposed to the IMF ‘dictation’ on exchange and interest rates, pulling the strings of the finance ministry, Shehbaz Sharif and his Finance Minister Miftah Ismail will continue to find it difficult to strike a deal with the IMF even if the cap on the energy subsidies is revoked.

Proponents of maintaining energy prices frozen to avoid hyperinflation at a time when they also have to deal with the PTI’s campaign for fresh polls are refusing to understand the fact that the trade-off will not be pleasant. It is going to largely widen the fiscal gap and force the government to borrow more from the commercial banks to fund its budget due to drying foreign flows. That will in turn drive up interest rates.

It goes without saying the rupee will remain under stress if the IMF funding is not restored, limiting Pakistan’s ability to borrow dollars from multilateral and bilateral lenders, and raise commercial loans to shore up foreign currency reserves that have already fallen to just above $10 billion. The increase in interest rates and currency devaluation will do just what they want to avoid — fuel inflation. The coalition partners must decide what they want: if they want to take tough decisions or go for a fresh mandate. They are running out of time, as well as their options.

Published in Dawn, The Business and Finance Weekly, May 16th, 2022