IT is not for the first time that the country has been on the brink of a financial collapse. We have been many times in the proverbial ICU in the past and have been resuscitated, of course with some outside help. It’s no different this time as we wait for ‘God’s hand’.
With the new government unable to swallow the bitter pill and address the situation, our financial recovery now completely depends on an IMF bailout and help from friendly countries. That may provide us with some breathing space. But it will not be long before we are back on the ventilator again.
Our failure to address fundamental structural problems has earned the country the dubious distinction of being the ‘sick man’ of South Asia. We lag behind on most social and economic indicators as compared to the regional countries, with the exception of Afghanistan. Nothing could be more alarming than the spectre of financial collapse of a nuclear-armed country.
For long, successive governments have traded on the back of the country’s strategic resources and geopolitical importance. That has made us completely reliant on international financial aid. Like other rentier states, we have tended to extract rent in exchange for our strategic support. Over the years, our financial dependence on migrant remittances has also increased.
Even if IMF and some states come to our rescue, it won’t be long before we’re back on the ventilator.
All that has reinforced the rentier state of our economy, with little incentive to initiate fundamental structural reforms in order to expand our domestic revenue base and reduce dependence on external resources. The current financial crisis cannot be seen in isolation; it is symptomatic of a more serious malaise. It is not only about reliance on external aid but also an economy based on internal rents limiting our productive capacity.
Unfortunately, it’s hard for our ruling elite to break away from this rentier mindset and move towards a sustainable self-reliant course. The ongoing blame game and political instability have further obscured the fundamental challenges confronting the country’s ailing economy. Postponing the tough measures for political reasons has already cost the country hugely. The short-term thinking will only worsen the crisis in the long term. The country needs to find a durable solution to its financial problems.
It is critical for the government to see the revival of the stalled IMF loan programme. But that will require taking all the tough measures that the government is trying to avoid for political reasons. Not only will the massive subsidy on petroleum products have to go, some other subsidies too will need to be cancelled.
Months before its ouster, the Imran Khan government announced a $709 million subsidy programme. That has further shrunk the fiscal space. Moreover, the government is also required to significantly increase tax revenues. The greatest challenge is to curtail soaring inflation and not resort to more inflationary borrowing. These measures would certainly help salvage the situation in the short term. But for a long-term solution, the government needs to do much more.
Over the years, Pakistan has regularly been going to the IMF for bailouts. We might well be the only country to be more or less perpetually in a Fund programme. A major reason is our failure to implement reform plans. We certainly don’t need to go to the Fund or any other aid agency if we have our house in order. Our failure to increase our revenues has led to the spiralling of domestic and external debt to unsustainable levels.
It seems that instead of taking unpopular actions in view of the coming elections, the government may decide to dissolve the National Assembly and hand the reins over to an interim administration. But can a short-term dispensation with limited authority take the required far-reaching actions within a period of three months? There is strong speculation regarding the prolonging of the term of an interim government to six months. But even that may not solve the problem. A major question is whether any future elected government would have the capacity and political will to continue with those reform measures.
Given the increasing political polarisation in the country it is highly doubtful that elections will produce a strong government, which has the support of all the federating units necessary for implementing a reform agenda. A broad consensus among all stakeholders has become more important with the greater financial and administrative powers given to the provinces under the 18th Amendment.
The lack of a broader agreement between the centre and the provinces has remained a major impediment in taking hard financial decisions. Most probably, new elections would not change the existing pattern of different political parties controlling the provincial governments. Notwithstanding the fact that Imran Khan’s government also had PTI set-ups in Punjab and KP, it remained at loggerheads with the Sindh government controlled by the PPP.
It could get worse with the possibility of three different political parties forming the governments in the provinces. Moreover, given the existing atmosphere of acrimony, there is little possibility of all political forces agreeing on an election mechanism to make the electoral process smooth and fair. Yet another controversial election could worsen the political instability, making it extremely difficult for future incumbents to carry out structural reforms to take the country out of its state as a rentier economy.
Undoubtedly, the frequent disruption of the democratic political process and extra-constitutional interventions have also been a major reason for the perpetuation of the rentier state. The fact that no elected prime minister has been able to complete his or her term is one of the reasons for institutional democracy not taking root. Our elected democratic institutions have increasingly become irrelevant with rising political polarisation and acrimony in the country.
It is true that the state of the economy is intertwined with political stability. For the country to move forward, it is imperative for all political forces to agree upon a charter of democracy as well as a charter of economy. The country cannot afford the politics of confrontation and an economy on the brink. A rentier state with its economy so dependent on external support cannot defend it sovereignty.
The writer is an author and journalist.
Published in Dawn, May 18th, 2022