The projections by the IMF, World Bank and rating agencies present a grim picture of Pakistan’s economic condition. The new ruling alliance has inherited an economic growth rate of four percent, a higher than estimated inflation and current account deficit, and even percent unemployment. What it translates into for the common man is partly noted by the World Bank report which cautioned that rising food and energy inflation was expected to diminish the real purchasing power of households, disproportionally affecting poor and vulnerable households.
Not that the new PM was ignorant of the situation. Only months back Shehbaz Sharif had been slamming the PTI government over its economic policies that had put the country under heavy debt and unprecedented inflation and unemployment. However, last week Mr Sharif expressed confidence that despite the economic situation being ‘very serious’ it could be improved with hard work and unity. It appears however that crucial role will be played by sound economic decisions.
The populist economic decisions taken by the outgoing government have to be reversed as they would have an adverse impact on fiscal and external deficits and constrain the new government’s capacity to drive meaningful change. This would require a phasing out of energy subsidies and ensuring the availability of food staples at affordable prices, which is a complex supply-chain-cum-pricing issue. A phase-out of energy subsidies would lead to challenges that include a spurt in inflation, followed by second-round effects as goods and wages are re-priced. The government will also have to focus on containing the fiscal deficit at a level which ensures debt sustainability, closely coordinate fiscal and monetary policy and retain exchange rate flexibility. The government also has to negotiate with the IMF to restart its suspended programme, which will not be easy after Mr Khan threw out key conditionalities in his last days.
Imran Khan wants early elections as he wants to ride on a sympathy wave generated by a nationalistic narrative of “regime change through foreign conspiracy”. He hopes to build pressure for snap polls through resignations from the assemblies. Navigating the next two quarters without any populist uprising would be a critical issue. For this the new government needs to maintain a balance between economic and political imperatives. However party interests have to give way to long-term national interests when push comes to shove.
