Need for an economic compact
Latest public opinion surveys confirm what has been increasingly apparent about popular sentiment in Pakistan. An overwhelming majority of people are despondent about the future because of worsening economic conditions. A Consumer Confidence Survey conducted by IPSOS for the fourth quarter of 2021 found 87 percent of people felt the country was going in the wrong direction. This marks a significant jump from a few months ago. The rise in inflation tops the list of people’s worries, according to the survey by the Paris-based research and consulting firm. It also found significant deterioration in the investment climate.
An October survey by Pulse Consultants found 57 percent of people losing confidence in the government’s ability to overcome the country’s economic crisis. 75 percent felt economic policies were going in the wrong direction.
None of this comes as a surprise. Economic discontent with the PTI government has been increasing due to rising inflation, sky-rocketing food prices and gas load-shedding, all of which are compounding public suffering as winter approaches. The government, while acknowledging that rising prices are hitting the public hard, has either chosen to blame predecessor governments for the country’s economic plight or offered disingenuous explanations. None of this helps to alleviate people’s economic distress and frustration.
The opposition, for its part, has been exploiting this situation to step up attacks on the government and calls for protests to mobilize the public against the ruling party. This has deepened polarization in the country as tensions rise with an intensifying government-opposition confrontation. Both blame each other for the economic situation. Lost in this political struggle is the reality that if the economy sinks, everyone loses.
The more areas that can form part of an economic compact between the government and opposition the better. But at a minimum, taking core issues off the political battlefield is the goal that should be pursued by both sides.
The government is now looking toward resumption of the IMF program to secure critical funds to avert a financial crisis. The staff level agreement that has been reached requires Pakistan to take several prior actions mainly on fiscal and institutional reforms. This will likely involve unpopular steps that will impose an even greater burden on people.
This should urge the PTI government to do the very opposite of its confrontational approach toward opponents and critics. In other words, to call a truce with the opposition and build a political consensus on economic steps necessary to put the country on the road to financial stability and viability. It is the federal government that has to take the initiative to bring all the provinces together in support of essential measures. It also needs to take Parliament into confidence about the financial challenge and the response it is fashioning to avert a crisis.
Opposition leaders, for their part, should also rise above themselves and acknowledge that if they oppose economic policies for the sake of opposition they stand to ultimately lose too. They are not doing the country a favor by rejecting what they would themselves deem as essential steps if they were in power. Opposition parties should recognize that if the economy tanks all else will be in vain. Both the government and opposition should show responsibility and accept that key economic measures should be taken out of partisan politics.
It would make sense for the two sides to agree on fundamental areas of economic policy. Four are important. First, tax reform to make the regime equitable and simple, and implemented nationally so that the country is managed under a single tax system. Resource mobilization, by widening the tax base, ensuring compliance, reforming GST and ending exemptions, is the single most important endeavor to address the chronic budget deficit and set the economy toward sustainability. Spending restraints on agreed areas should also be pursued.
Two, agree on the State Bank’s operational autonomy and the market determining the exchange rate. The central bank should only be a monetary policy authority. At present it also functions as a development finance institution, which distorts its primary regulatory function and creates an internal conflict of interest. The State Bank should be left in charge of controlling inflation.
Three, agree and collaborate on a single business regulatory framework for the country and remain consistent in preserving that framework as well as projects under implementation when governments change. Policy continuity and certainty are crucial to build and sustain investor confidence.
Four, agree which loss-making state-owned enterprises should be privatised and evolve a transparent process to achieve this. These financially haemorrhaging SOEs have long been bleeding into and bloating budget deficits and should be dealt with and not become a politically contentious issue.
Of course, there are other areas which can benefit from political consensus such as power sector reform and measures to expand the export base. The more areas that can form part of an economic compact between the government and opposition the better. But at a minimum, taking core issues off the political battlefield is the goal that should be pursued by both sides. The government and opposition need to transcend their rivalry to deal with the economic challenge as that will determine the country’s future.
- Maleeha Lodhi is a former Pakistani ambassador to the US, UK & UN. Twitter @LodhiMaleeha