WITH the new election anticipated some time next spring or early summer, business has already started guessing the kind of setup it will throw up, and its possible impact on the economy.
A research note for the investors released by Topline Securities last week, for example, expects the election to revolve around governance, energy crunch, rising food and fuel prices and produce a fragmented, ‘hung’ parliament with no party gaining a clear cut majority (in the assembly) needed to form the next government independently.
“In the backdrop of the country’s electoral history, emergence of the third force in the form of Imran Khan’s Pakistan Tehrik-e-Insaf, new electoral list and media and judicial activism, the outcome of the upcoming election has become more uncertain than before,” it says.
Still, it believes that the new setup will ‘rejuvenate’ the stock market, implying an improvement in the economy. The benchmark Karachi Stock Exchange index could touch 18,000 in the run-up the election, it avers.
“The investors are likely to cheer the election related developments promising to hold solutions to the country’s structural issues that have marred country’s economic performance in the last four years. We expect the benchmark KSE-100 index to climb to the new high of 18,000 points by May next year in the run-up to the election, providing 14 per cent return amid expectations that economic and political issues may be resolved as the new government steps in. “This is close to average gain of 13 per cent seen six months before every election in the last 20 years,” it says.
“In addition to the election related extravaganza, improving relationship with the United States and India and decent foreign capital flows are likely to create positive sentiment in the market. However, external account financing will remain a risk.”
The analysis projects next government to be a coalition led either by the PMLN or the PPP with or without Imran’s party. It expects the PMLN led coalition to “bring back the government’s focus on revival of the manufacturing and resolution of the energy shortages”, crucial for growth. Even if the PPP led coalition returns to power in the election, it is likely to perform better on the economic front in spite of its dismal performance during the current tenure and focus on improving governance and implementing reforms agenda provided the PTI also joins it. While optimism about the PMLN restoring focus on economy and it’s structural issues is based on its performance in its previous two tenures, the PPP is not expected to perform unless it has a check on it in the form of reformist PTI.
The analysis largely draws a happy picture of the economy in the run-up to the election but fails to discuss implications of a fragmented mandate for the economy. Nor does it discuss the economic implications of a possible delay in the formation of a new government due to a split mandate, or the (in)ability of a weak coalition to take tough decisions.
“The new election will generate huge economic activity across the country with political parties and their candidates spending billions of rupees on electioneering, creating new jobs. But I don’t agree with the conclusions that expect the election to revive the economy. A split mandate after the polls with no party getting a majority will cause the situation to worsen. It is hardly the answer to the economic difficulties of the country,” says a businessman from Karachi.
“Actually, political instability and gridlock will only increase economic hardships with no one available to take tough policy decisions,” he says, pointing out as to how political difficulties of the incumbent PPP-led coalition had kept it from implementing crucial reforms like value added tax (VAT). He said the timing of economic decision was as important as decision itself.
“If a right decision is taken at a wrong time, it will not yield the desired results. If you want results, you got to make decisions when they are needed to be made. The split mandates and coalitions in this part of the world always stall governments from taking timely decisions at the expense of the economy, “ he warned.
A Lahore-based auto vendor agrees. “Our economic salvation lies in taking decisions for addressing energy crisis, taming inflation, stopping exchange rate depreciation and for implementing tax and other reforms without further delay or waste of time.”
He was of the view that the political parties must develop a consensus on broad features of a joint economic strategy and reforms agenda they would want to implement if any of them came to power. “This kind of agreement between the political parties will allow even a weak coalition space and power to take tough decisions needed to put the collapsing economy back on the road to growth. Narrow political interests should not be allowed to stall the process of economic reforms and growth,” he said.
He was disappointed to note that none of the three major political parties scrambling for power in Islamabad had come up with any viable, long-term policy to address the issues facing the people and the economy. “Politicians from different parties are saying fairly the same things about the economy without elaborating as to how do they plan to achieve their electorate mandate. They very well know that the voters will largely be expressing their concerns over food prices, job losses, energy shortages, etc through their vote. Still none of the parties has bothered to come out with a sound economic programme and strategy to win over the voters,” he said.