FeaturedNationalVOLUME 17 ISSUE # 44

PDM’s last hope

The government and its allies have decided to hold elections on time, hoping that they would improve the economy and provide relief to the common people after a few months. However, the ground realities show it is not easy to revive the economy in a couple of months or years and recent floods have worsened the situation.

It is also a fact that Pakistan’s economy is in bad shape because of the poor performance of parties of the Pakistan Democratic Movement (PDM) government, especially the Pakistan Muslim League-Nawaz (PM-N) and the Pakistan Peoples Party (PPP), which have been in power for decades in Pakistan. They lack the capacity to resolve national and local issues. It is futile to expect any miracle from the coalition government, which hangs by a thread and lacks the capacity to make decisions on time. Like coalition governments in the past, its main focus is to please its allies, which leave no chance to blackmail it. Cracks have already appeared in the government after its failure to meet the demands of its partners. Besides, Pakistan’s issues are so complex that they cannot be resolved in months and years. A dedicated effort for decades is needed to improve the economy and resolve national and public issues.

At this point of time, the coalition partners, especially the PML-N and the PPP, feel that they cannot win the next election if it is held in a few months. High prices of food and essentials have eroded their credibility among the people. They believe that they are at the lowest ebb of their popularity and if they continue till August, 2023, they may be able to fix the economy and provide relief to the common people. It is their outside chance. However, the ground realities show the situation will not improve in Pakistan, at least in a few months and years. The recent floods have worsened the prospects of any improvement.

It is feared that floods may have caused over $40 billion in economic losses. It is three times more than the initial estimate of $10-$12 billion. The new number is even far higher than the $30 billion figure given by United Nations Secretary General Antonio Guterres.

The finance ministry has also warned that the economic outlook is surrounded by global and domestic uncertainties, including lower growth, especially in the wake of recent heavy rains and floods affecting Kharif crops as well as elevated inflation. It also warned that recessionary tendencies may hurt Pakistan’s export markets in the coming months. “The economic outlook is surrounded by global and domestic uncertainties. Geopolitical tensions remain unabated, worldwide inflation remains high, interest rates show tendencies to rise, and the US dollar strengthens. Pakistan’s external environment is facing increasing challenges,” the ministry said in its latest monthly economic update.

Fitch Solutions has also revised Pakistan’s real GDP growth forecast for the fiscal year 2022-23 down to 0.2pc, from 0.6pc previously, while stating that the severe floods in Pakistan would weigh on agricultural production and exacerbate the country’s external imbalances. In its latest report, it said that a reduction in crop production would also likely lead to higher inflation, which in turn could prompt the State Bank of Pakistan (SBP) to tighten monetary policy even more aggressively than what is currently expected. Economic hardship due to adverse weather poses additional downside risks to social stability in the country too. It expected floods in Pakistan to exacerbate the already weak economic outlook and political situation. “We have lowered our real GDP growth forecast for Pakistan to 0.2pc for 2022-23 (July–June), from 0.6pc previously, as adverse weather conditions will not only reduce agricultural production which accounts for 19pc of GDP but also weigh on exports and exacerbate Pakistan’s external imbalances. Fitch expects the flooding to negatively impact Pakistan’s agricultural production, as the current crop is damaged and future plantings will likely be delayed. As much as half of Pakistan’s current cotton crop has been damaged, while the outlook for Pakistan’s rice crop is also bleak. This will likely see the country’s trade deficit widen as agricultural exports fall and food imports rise.”

It said the flood would also have negative implications for the downstream manufacturing sector, for instance, cotton is a key input component for the textile industry which accounts for about 56.5pc of overall exports. The report further stated that Pakistan was facing a potential balance of payments crisis before the floods hit. A widening trade deficit would further weigh on the dwindling foreign exchange reserves and the Pakistani rupee. The agency highlights that it sees downside risks to its forecasts for the current account deficit to widen to 4pc in the fiscal year 2023, as foreign reserves are also falling. As of 26th August, the country’s foreign reserve holdings fell to around an eight-year low of $13.4 billion. This amounts to about 2.7 months of import cover which is less than the three months minimum recommended by the International Monetary Fund (IMF).

In view of the situation, the coalition government should hold elections. It will surely lose, with a huge majority to Imran Khan and his party, but it will turn the public focus away from it, on the next government. As the situation will not improve in a few months, the PML-N and the PPP could turn the tables on the next government.

On the other hand, former Prime Minister Imran Khan has raised public hopes beyond reality. He has been demanding early elections since his ouster. If elections are held now, he will sweep them. However, the government is not willing to hold elections in a few months for fear of a heavy loss. The government wants to delay them as long as possible, without realizing that it would not benefit it at all. It needs massive funds to rehabilitate flood victims for years. In the situation, it will be difficult for any government to provide relief to the common people. The situation will not be as easy as Imran Khan believes. It will be difficult for him to lower prices after coming to power. Under IMF conditions, he will not be able to provide subsidies on fuel and electricity as he did in his government. In this situation, he will fail to provide immediate relief to people. He may face the wrath of people sooner than expected because he has raised their expectations beyond ground realities.

The country also needs political stability, which has eluded it for decades. Protests by opposition parties start days and months after the installation of a new government. Elections should be held in a transparent way, so that all political parties accept their results. It will ensure political stability in the country, which is vital to attain economic sustainability.