Whosoever would be in the driving seat during the interim government and whenever the election is held and new Prime Minister would be sworn in, the main agenda should be to improve economic viability of the common man and industries as both have suffered a lot during the last five years either it is PTI or PDM dragging the country into deeper recession as tremendous overhauling is required to keep things on track.
During the last five years major setback the common people and industries have suffered have been due to the ever increasing inflation which was mainly due to the racing value of dollar versus the rupee which throttled the lively hood of both the segments. There has been not a single authority which defended the speedy depreciation of the Pak rupee but during the period the big wigs have several times narrated that depreciation of the Pak rupee was revealed through television, it appeared that they care less and chose to remain unaware about the happenings at the economic front. There was general belief that rupee on an average depreciated by four to five percent per annum as per the economic data during 90s and 20s. But during the last five years rupee depreciated by around 64 percent or by more than 12 percent versus dollar. Meanwhile during the fiscal year from July 2022 to June 23 it depreciated by 28 percent, fastest in the history of the country in any single year.
Because of the higher depreciation the prices skyrocketed especially the main driver-the petroleum products recorded appreciable gains during the period. Another factor which gave shock to the consumers and industrial users was the Russia and Ukraine war which increased the global prices where halt in shipments also disturbed the movements of cargo vessels.
During three and half years of former government petrol and diesel prices shot up from Rs 95 and Rs 112 for petrol and diesel to Rs 149 and Rs 144 per liter, showing a rise of 36 percent and 22 percent respectively. While during the 16 months of Shahbaz Shareef government price shot up by 45 percent and 47 percent for petrol and diesel reaching to around Rs 272.95 and Rs 273.40 per liter respectively.
Beside depreciation of the rupee, the petroleum product prices rose sharply because of the binding with the IMF, to qualify for the program government agreed upon to increase the Petroleum Development Levy. Currently on petrol and diesel the levy is around Rs 55 and Rs 50 per liter. Moreover several strings attached with the IMF program to merely get $1.2 billion loan, the cost is too high and unbearable for both the residential and industrial consumers.
Observers felt that phase of interim government which might stretch for two years probably would yield another series of shocks in the shape of depreciation, higher interest rate, raise in gas and electricity tariff. Much concrete efforts are required to streamline the economy because these measures are painstaking and would eliminate the existence of business houses, economic growth would be decelerated and fresh investment would take a blow from both domestic and foreign companies.
Ali Nawaz, CEO, Chase Securities said that the current state of Pakistan’s economy is undoubtedly a complex issue that cannot be solely attributed to any one political party.
Both the PTI and PDM share a degree of responsibility for the economic challenges the country is facing. The PTI’s tenure has seen efforts to implement structural reforms and address corruption, but some of their policies might not have produced the desired results in a timely manner. Similarly, the PDM, as an opposition force, also bears some responsibility for not providing constructive alternatives or engaging in bipartisan efforts to address economic concerns.
Both parties have missed some crucial aspects necessary for sustaining a stable economy. These include consistent policies that encourage investment, job creation, and innovation, as well as effective management of fiscal deficits and external debt. A sustainable economy requires bipartisan cooperation and a commitment to long-term economic planning that transcends party politics.
As an interim government takes over, Pakistan faces the need for some significant decisions that could set the course for the future”, Ali said.
Key decisions include managing the ongoing fiscal deficit, addressing energy shortages, promoting export-oriented industries, and attracting foreign investment, he said. These decisions should be guided by a comprehensive approach that involves experts from various sectors, ensuring a well-rounded strategy.
In the upcoming elected government, irrespective of the party in power, the focus should be on implementing structural reforms that enhance the ease of doing business, boost industrial productivity, and improve governance. Decisions related to tax reforms, education, healthcare, and social safety nets should also be on the agenda, as they have a direct impact on the long-term economic well-being of the country. Ali said.
Sachal Abbasi, Research Analyst at Pearl Securities said that the Both PTI and PDM are responsible for the current state of the economy what they both missed to keep this sustainable.
The PTI government was responsible for overheating the economy through expansionary policies using too much leverage as well as delayed policy response to compounding inflationary pressures. The PDM government for trying to control the exchange rate and imposing import controls which delayed approval of loan tranches from the IMF and reduced economic activity in sectors which rely on imports for key production inputs, respectively.
“Given that the current government has adopted most of the policy measures demanded by the IMF, it’s unlikely that the interim government will need to introduce any significant economic reforms or will be pressured to do so by bilateral or multilateral lenders, Sachal said. The newly elected government, however, will need to adopt policy measures, especially to resolve circular debt, in order to comply with any conditions that the IMF will impose as a requisite for their future loan program.
“Recouping from the current mess will require making long term structural changes in Pakistan’s economic model to transition towards a sustainable export orientated economy by encouraging investments in export and human capital intensive sectors while broadening the tax base for better revenue generation”, Sachal said.
Both PTI and PDM incumbent political parties disregarded fiscal discipline, said Iffat Zehara Makani, CEO JS Investments.
Givdn limited resources, the country required public finance management system to be efficient, disciplined, transparent, independent and accountable.
An analysis reveals that fiscal policy has not effectively fostered comprehensive, inclusive economic growth over the past two decades, she said.
However, it’s important to recognize that fiscal discipline is just one facet that must collaborate harmoniously with enhancements in other public finance management system dimensions.
It’s this very failure that has ignited social tensions and disruptions. Critical concerns like poverty alleviation, food provision, inflation, and national security occupied the attention of those administrations, pushing fiscal discipline to the bottom of the priority list, Iffat said.
The imminent interim and new administration of Pakistan is confronted with the formidable task of addressing the nation’s economic challenges. In order to maneuver through these obstacles effectively, the government must prioritize fiscal prudence by curtailing unnecessary expenses and optimizing budget distribution, Iffat said.
The implementation of comprehensive tax reforms to broaden the tax base, along with the enforcement of strict measures against tax evasion, will augment revenue generation. Furthermore, it is imperative to initiate structural reforms aimed at improving governance, especially within state-owned enterprises, which is crucial for achieving sustained long-term growth.
Encouraging diversity in exports by facilitating non-traditional sectors and entering emerging markets will aid in mitigating vulnerabilities associated with an excessive reliance on a limited range of industries, said CEO JS Investments
