May 26 , 2023
To get a government that is truly strong enough to tackle this situation requires elections. Let the voters pick who should steer Pakistan at this time of crisis. The current government did not win any election. They lack legitimacy – The Business Standard
The Answer to the Grave Crisis Is Elections
Pakistan has drifted into a calamitous state over the last year since the PDM was able to dislodge Imran Khan and the PTI from power. The PDM (an alliance of all the opposition parties, including PMLN, PPP, and others) was able to switch a handful of votes in the National Assembly and force Imran Khan from power through a vote of no-confidence.
In most normal parliamentary systems, if the government loses a vote of no-confidence, then it must call an election. But in Pakistan, while the PTI wanted to go to an election right away, the PDM put together enough votes to install Shehbaz Sharif as Prime Minister. This was a complete disaster.
While the economy had grown 6% for each of the last two fiscal years, the current fiscal year starting July 2022 has seen an economic meltdown. The problem began with the PDM stopping the float of the exchange rate and fixing it in overvalued territory. This caused a surge in imports and rise in the current account deficit, which resulted in Pakistan seeing a sharp decline in its foreign exchange reserves. The PDM was simply too weak and disorganized to do anything about this situation.
What needed to happen was to go back to the IMF and restart a new agreement that would restore international confidence and bring dollars back to the economy. But to do that Pakistan would have to agree to some difficult terms that the IMF would demand, primarily cutting back on subsidies and raising taxes to cover the budget deficit. This is not some form of punishment by the IMF towards Pakistanis, just simply forcing Pakistan’s government to live within its means like everyone else has to.
The IMF has another problem. Given how weak and disunited the government is, it doesn’t trust any deal worked out with Finance Minister Ishaq Dar to be actually enforced and complied with. Without the blessings of the IMF, other foreign lenders will not roll over their dollar loans and will demand repayment, something Pakistan simply cannot do. If this situation were to continue, Pakistan could be faced with a default of its foreign debt for the first time in its history.
Without foreign backing, the PDM came up with its own solution to the lack of dollars. It imposed severe import restrictions and floated the exchange rate, with the PKR to USD now trading at about 300. The import restrictions worked, as imports collapsed and the current account deficit has been brought down to zero. But it has come at a terrible cost. For lack of vital imports, much of Pakistani industry has been idled. Exports have also come down sharply as a result. Unemployment has risen, while industrial production, electricity output, and oil consumption have all slumped.
Compounding this economic mismanagement has been excessive government spending and a central bank that has completely failed to control inflation. Inflation has surged to over 35% for the last 12 months, the highest rate in Pakistan’s history.
How can Pakistan get out of this mess? The highest priority is getting a government that is strong enough to take hard decisions and is willing to put highly qualified people in key positions that determine the economy. It is no coincidence that inflation surged out of control after Reza Baqir left his post as head of the State Bank of Pakistan. He is a well-known international banker who did a great job running the SBP under Imran Khan’s government. To get a government that is truly strong enough to tackle this situation requires elections. Let the voters pick who should steer Pakistan at this time of crisis. The current government did not win any election. They lack legitimacy.
The PTI dissolved the Punjab and KPK Assemblies over three months ago, and per the constitution new elections were supposed to happen within ninety days. But the PDM doesn’t want any elections at all, because they know how deeply unpopular the PML-N and PPP are with voters. Federal elections are due by October, but they should be held immediately.
It is really sad what the PPP and PML-N have done to Pakistan over the last thirty years. In 1990, Pakistan had a GDP per person that was 50% higher than India, and double that of Bangladesh. Since then, India has taken a slight lead, and Bangladesh has almost closed the gap. This is due entirely to the terrible economic performance of the PPP and PML-N between 1990 and 1999, and then 2009 to 2018. In between there were nine years under the military dictatorship of Pervez Musharraf.
While it was not democracy, Musharraf’s rule was very effective with high rates of economic growth and substantial decline in absolute poverty. With wise economic leadership Pakistan can thrive. It only needs 25 years of 7% growth to reach the level of a developed nation, and that can be done. Good government is what is needed.
