NOW that the dust is beginning to settle from the political situation created by the disqualification of Nawaz Sharif, and work resumes after Independence Day celebrations, it is time to once again focus on the gaping deficits that plague the economy. It has become somewhat routine for people to remain riveted to a political crisis in Islamabad while the country slides towards a virtual emergency. We saw it happen in the closing months of the Musharraf regime, as well as the last few months of the PPP government. That history is now in danger of repeating itself as once more the same economic deficits threaten to choke the nascent growth rates achieved after a decade-long slump, as well as the power system, with the circular debt continuing its upward trajectory.

There are three directions from where a potential economic crisis could arrive. The circular debt has the potential to shut down the power system, regardless of the new generation capacity added to the system in previous years. The external sector deficit can administer a shock to the economy if the situation necessitates a sudden devaluation of the exchange rate, followed by a hurried approach to the IMF which will administer its standard stabilisation policy. And the fiscal situation can spiral out of control if political compulsions are allowed to be in the driving seat, severely constraining the room to manage the power system, besides fuelling inflation and hiking up levels of public debt. In transitions past, a mixture of these three elements worked together to send the economy into the emergency room even as the capital remained in thrall to a political drama. It is worth bearing in mind that regardless of who is running the country, the problems remain the same and each crisis looks increasingly like the previous one. At some point, sanity needs to prevail, at least just enough to allow crucial decision-making to continue without being shackled to the political noise.

Published in Dawn, August 16th, 2017