Struggling with low GDP growth and dogged by persistent high prices, the PTI government is holding the previous PML-N administration responsible for the ongoing economic malaise as well, just like almost everything else that is going wrong. Yet this time the ruling party might have a point.
Some leading economic analysts like Ashfaque Hasan Khan are beginning to agree with the government in saying that once PML-N realised it was not going to win the 2018 election, especially because of the Panama case and Nawaz Shairf’s disqualification and arrest, it decided to sabotage the economy so the new government would have a tough time standing on its own feet. And indeed that is precisely what has happened and growth, which was averaging above 3-4 percent at the very least, suddenly dropped to 1-2 percent; even lower after the pandemic.
There are a number of reasons for this. Granted, governments tend to put a little extra strain on the exchequer in election years, along with incorporating expansionary fiscal and monetary policies, but once Nawaz Sharif was disqualified and a new cabinet was selected to see the electoral cycle through, they started making decisions that literally amounted to putting potholes on the road to long-term growth.
For example, the annual import figure suddenly bloated as the PML-N government drew to a close. For a country with a chronic fiscal deficit, which has been forcing it to borrow just to survive for decades, suddenly green-lighting luxury imports of all sorts, to the tune of tens of billions of dollars, simply created a nightmare scenario for whoever was going to take the reins after the 2018 general election.
PML-N also suddenly exempted a large portion of the working class from income tax in what was not just a populist measure meant to attract voters, but also what seems like a deliberate ploy to hamstring revenue. And the rupee was artificially kept at around 100 to the dollar more or less from the day that Ishaq Dar was made finance minister. It was allowed to float, within a very limited band, when Khaqan Abassi and Miftah Ismail ran the show for a short while, but the damage had been done and the fiscal deficit was taking the very life out of the economy.
Therefore, when the new administration came it faced a situation where abnormally high imports, low exports and very unimpressive revenue collection meant that the country wasn’t too far from actually defaulting on its debt. That necessitated a series of painful reforms that led to drastically cutting down imports, increasing the tax base and handing the rupee over to proper market forces. Sure, exports would ordinarily have been buoyed by such rapid devaluation, but manufacturing and production was in such a mess – with nothing done to add any value in any production mix over the last few decades – that while imports dropped like a rock because of all the reforms, exports barely budged a percentage point or two.
The fiscal situation forced the government to go into another IMF program, which was nicely on track till the coronavirus and the lockdown pushed it into a place where it had to temporarily suspend the bailout program so it could throw a stimulus package into the economy to keep it solvent. So the jury is still out on the success, or lack thereof, of the PTI government’s economic policies so far.
True, on the surface there doesn’t seem much to write home about. But considering where this government had to start, with an overvalued rupee facilitating a deluge of luxury imports while the revenue base was deliberately squeezed, it seems to have done quite well since the fiscal situation is far better, tax earnings have increased although a lot more needs to be done, the rupee is floating freely and without too many problems, and reserves are piling.
The real test of this government, therefore, will come in the time it has left. That it has taken so long just to come to the starting point would be unacceptable in normal circumstances, but given the condition of the economy when it took over, and the fact that most indicators are much better now, it can’t really be said that the past two and a half years were completely wasted. But if it is still embroiled in the same problems by the time it has to go to the people for their votes all over again, then it will have only itself and its policies to blame, not the previous government or a once-upon-a-time import bill and rupee-dollar parity.
