No Time for Economic Mourning

It’s done. We have a new set of economic managers. The gruesome politicking, hourly chess moves, neutrality of umpires and the locking of dissidents is over.

While the bickering, protests, unfolding of new corruption cases and closing of the previous ones would continue for the foreseeable future, the imminent task is to “steady the boat”. It’s rocking nor rolling.

Pakistan’s economy is fairly cyclical in nature. In times of external support – US-led economic support or crash in oil prices – Pakistan’s fortunes are reminiscent of Asian Tigers.

However, amid high commodity prices or US-led sanctions, we barely survive year by year, watching the world leapfrog in development.

Such external dependence of “stroke of luck” kind of growth needs to be avoided. Though these are long-time challenges, immediate stability-requiring measures need attention.

First, calm in markets. The forex market has already responded. The change of house has luckily coincided with the SBP’s emergency monetary policy hike of 2.5% to reduce uncertainty and tame the external imbalances.

Having promptly improved from Rs189 to Rs181 against the US dollar, Pakistani rupee should snail towards mid-170s in the next few months. Find an optimum balance that continues export-led growth while not spurring consumption-led growth.

Second, the expenditure needs to be curtailed to reduce government borrowing needs and bring long-term bond yields back in contango to escape the yield inversion.

Lastly, confidence-boosting interviews and policy framework should be laid out to domestic and foreign audience to normalise the high-default scenario depicted by Eurobond yields. For that, inflation expectation and forward guidance is overdue.

Third, there is a need for re-engagement with the IMF. Miftah Ismail (presumably the man in charge) should evaluate the current IMF programme and ensure its continuity.

That would probably involve increasing petrol and diesel prices to around Rs200 per litre if oil remains in triple digits, increase in electricity prices and undoing of the latest amnesty scheme.

Multi-year targets would be impossible to set at the moment with the IMF until fresh mandate is sought. However, bleeding of resources needs to stop as soon as possible and such unpopular decisions are warranted. Fourth, Pakistan has long remained economically dependent on friendly countries. These “tokens” are again needed to prop up the SBP’s forex reserves, which have crashed to nearly six to seven weeks of imports.

SBP’s forex reserves have halved from $20 billion in August 2021 to $10 billion right now, although debt rollover of $4.2 billion from China and $2 billion from the UAE has already been agreed by the outgoing PTI government.

Thus, saving of forex reserves by stopping the rapid expansion of current account deficit is imperative. For that, the SBP has already sprung into action.

Fifth, decision should be made on the SBP’s governor tenure. Dr Reza Baqir is widely perceived as a stabilising factor by the lenders, local investors and global analysts. PML-N should take a clear stand on his continuity or not.

Successful programmes such as Mera Pakistan Mera Ghar, Roshan Digital Account, (to an extent) the flexible rupee and digitisation must not be rolled back.

SBP team should be seen as independent and working solely for Pakistan’s interest after the recent central bank autonomy bill.

Also, Baqir may very well come in handy for Miftah team in their tough discussions ahead with the IMF.

Sixth, there should be policy continuity for industrialisation.

Investor confidence takes years to be built and days to disappear. If, for whatsoever grounds, some of the industrial policies introduced by PTI are rolled back on the pretext of imprudence, incompetence or corruption, that would utterly cause dismay among local and foreign investors and dissuade capital formation as well as job creation.

However, if there are pending draft policies, which are vital to bring foreign and local investment for import substitution and export enhancement, then these should be promulgated at an accelerated pace (or at the Shahbaz speed?).

Seventh, the energy mess needs to be fixed. Granted the PTI inherited a high circular debt, structural inefficiencies and unaffordable capacity payments, the new economic team is now inheriting an even bigger challenge.

Inevitably, the energy prices would have to be revised and passed through to consumers to avoid the accumulation of any subsidy.

The rising capacity payments can be absorbed by the government by reducing the front-loaded impact to keep electricity/ gas prices regionally competitive enough for exporters and industrialists to compete effectively.

Lastly, the next year’s budget should reflect the election manifesto of PML-N.

As a seasoned political team with decades of learning and administrative experience to project their specialty, the new budget should be targeted towards the masses and contain blueprints of PTI vs PML-N.

Hence, Miftah team’s budget must showcase stability, imminent fixes, priorities and export-boosting measures.

Prime Minister Shehbaz Sharif has already hinted at various forums that the damage inflicted by the outgoing government is unprecedented and would take years to put “marham” on the “zakhmon” of people – clearly reminding the nation of the words used by the outgoing prime minister, Imran Khan, in 2018 and 2019.

People are at a disadvantage if every time the economic team gives a “disclaimer” that don’t expect miracles and sets the bar too low and over-delivers the meagre expectations.

Nonetheless, the coast is not clear for the new captain. Public agitation would increase, especially when Nawaz Sharif heads back.

Calls for early elections would get louder and louder and may most likely bereft PML-N for next budget announcement.

Meanwhile, the fate of 220 million people again hangs in the balance with the erstwhile experienced team to ensure that prosperity of the people is never compromised by the ruling elite.

It’s time for all politicians to put emphasis on economic supremacy as much as they put on “Vote ko Izzat do” or “Imported Hakoomat Na Manzoor”. Stay tuned.

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