Spearhead Analysis – 21.03.2019
By Farrukh Karamat
Senior Research Coordinator, Spearhead Research
It was not in the too distant past that the Imran Khan led Pakistan Tehreek-e-Insaaf (PTI) swept to power on the back of tall promises and a great vision to create a Naya (new) Pakistan. He remains as popular as ever but the initial euphoria appears to be subsiding as reality is creeping in with questions being raised about what is actually New in the promised Naya Pakistan. The new Government was quick to take decisions aimed at creating optics and appeasing to an easily swayed populist mentality of the masses—after all expectations were high. This resulted in the sale of some vehicles, buffaloes, the announcement of a purported austerity drive, and the opening up of State residences with visitation rights for the public. The Prime Minister House was to be converted into a University, but the final decision is still pending on the real purpose of the PM House. Similarly, the walls of the Punjab Governor House were to be ‘immediately’ demolished, as they were a sign of the ‘Colonial era’, but the Lahore High Court ruled against any such action. Now we hear that the Governor House is to be converted into a Museum. Meantime it is a popular spot for Lahorites to visit. As part of the austerity plan the Prime Minister chose to travel between his hill-side residence (Bani Gala) and office in a helicopter and it was explained to the masses by an over eager minister that the helicopter is actually more fuel efficient than a motor vehicle. It certainly causes less problems for the people.
The PTI government was quick to realize that they had inherited a bankrupt economy and the Ministers came out with statements that were anything but confidence inspiring. The economy was stated to be on a “life support” system and undergoing a “by-pass” operation. Quick and long-term fixes were urgently required and the logical route was the International Monetary Fund (IMF) for a bail-out package along with a structured reform programme. Unfortunately, the Prime Minister had spoken so vehemently in the pre-election campaigns against the borrowing from the IMF by the governments in the past that the bail-out decision continues to be delayed. During this period Pakistan’s credit rating has gone down to B-Negative (Speculative), basically junk status, as determined by Fitch, S&P and Moody’s, raising the risk and the cost of borrowing for the country. In the meantime, the Prime Minister has been running from pillar to post in search for funding from ‘friendly’ countries. Saudi Arabia, China, and UAE have provided some support in the form of deposits and loans but nothing substantial or long-term. The Government continues to resort to borrowing with a serious revenue shortfall. Massive Rupee depreciation, price hikes, interest rate increases and rising losses in State Owned Enterprises (SOEs) continue to exert negative pressure on the economy. The people continue to be burdened with higher prices, rising utility bills, higher cost of medicines, and shortage of certain essential and non-essential items as a result of imposition of higher Regulatory and Federal Excise duties. The word from the Finance Minister is that more hardships are to come. People need to be given a blueprint for the future to generate hope and optimism.
The textile industry, the apparent growth driver, continues to promise a doubling of exports in the next five years and the Government continues to believe that this can be achieved and is providing subsidies and concessions to the sector. This comes at a high cost in terms of a depreciating currency, which so far has lost in excess of 32 per cent in value with no evident rise in exports as import-based input costs continue to rise with inflationary pressures within the country. The Remittances continue to be stagnant to marginally improved. The Tax revenue remains below targets and the Federal Board of Revenue (FBR) continues to harass the existing hapless tax payers, rather than concentrating on expanding the tax base. Face audit or pay additional tax and be let off. Business activity continues to decline as the parallel economy – once the engine of growth – has gone underground. The Prime Minister has categorically stated that wealth creation is not a sin and has also said that the FBR cannot be reorganized and perhaps a new tax collection organisation needs to be created. The Prime Ministers thoughts need to be turned into strategies for implementation.
The saga of U-turns continues and the statement of the Prime Minister referring to Hitler did not go down too well – if Hitler had taken a U-turn history would have been different. The Prime Minister, of course, meant that rather than persist in folly you need to turn around and do something different. The appointment of a Punjab Chief Minister on the basis of him being from an ‘impoverished’ background and having no electricity in his home puzzled many but so strong was Imran Khans charisma that his decision was accepted. The first major decision of the Chief Minister has been the parliamentary approval of an increase in his salary and perks. On his part, the Prime Minister has berated the CM as he still believes that he can deliver and people accept the PM’s judgment but with mounting reservations. Punjab needs effective governance.
The visit of the Saudi Crown Prince was celebrated with pomp and luxury. A number of Memorandums of Understanding (MoUs) were signed running into Billions of US Dollars. Unfortunately, the MoUs are nothing more than aspirations and remain meaningless till they are executed and the money starts flowing in. The Chairman of the Board of Investment (BoI) has also hinted at MoUs to be signed with Malaysia. Great achievements if these translate into reality. In the past the PML-N led government had also signed many such MoUs, which never really materialized. There were also claims by the last government of huge reserves of gold, silver and iron-ore in Chiniot, which never materialized. We are now hearing of huge natural gas and oil reserves in Baluchistan, and one hopes that this time around the people of Pakistan are not being duped yet again.
The Sahiwal massacre was a great tragedy and one that should never have happened. To date nothing has been done about it as decisive action continues to be delayed perhaps hoping that it would be forgotten. This mirrors in many ways the Model Town tragedy, which to this day remains unresolved even after the availability of irrefutable evidence to convict those involved in perpetuating that tragedy. The PTI government is focused firmly on Corruption and the Corrupt. Bank accounts abroad are being sought out and Benami Accounts being investigated. Certain high-profile individuals are being targeted by NAB, with extensive information leaks to the media. The Prime Minister has categorically stated that he would punish the corrupt – something that is for the courts to decide. What is emerging is sad—men of straw for whom there were no limits and with even enormous wealth they still needed more. The sad part is that the accountability is being carried out under a law created by a Dictator in the past and one that has been used by successive governments to gain political mileage rather than achieve real accountability. A transformation in the Compliance and Accountability structure is required to ensure that corruption can be managed and controlled objectively, something that is not being done. Some very basic questions about the current corruption investigations are: Where was the Central Bank over the past many years? Where were the Tax authorities? Where were the Excise and Customs officers? Where were the concerned Bank Officials? It is odd that the frequent internal and external audits failed to reveal any corruption till now. It is all well to parade the accused and create media coverage, but that will not resolve anything. The problem is not so much corruption itself but an institutional system that allows the corruption to flourish – that is what needs to be fixed more than anything else.
Millions are being spent on the trial, imprisonment and treatment of the ex-Prime Minister, and he is being accorded privileges, which a ‘normal’ convicted prisoner cannot even dream of. This is also very reminiscent of the past whenever a leader of a political party was in prison. The SOEs continue to flounder and accumulate losses and the government continues to dole out financial help – as in the past.
The recent handling of the tense situation with India was very professionally managed by the Military and Political leadership. This enhanced the image of Pakistan and this is the kind of decisive decision making that needs to be exhibited across the different facets of the State. It was a complete departure from the dithering decision making in the past and showed that the will and potential is there to deliver when there is a threat. This same will and determination needs to be incorporated into institution building to deliver on the socio-economic fronts. No one doubts the integrity or resolve of Imran Khan, but at times he is compromised by certain parts of his team and that is something that he needs to address to move forward in a meaningful way to build the envisioned Naya Pakistan. The extractive mentality of certain vested interests to self-perpetuate their dominance needs to be curtailed to achieve national objectives of growth and prosperity for Pakistan.
The economy remains the crucial link that would define the future direction of the country. There has been great euphoria over the recent World Bank Report, which has stated that Pakistan has the potential to be a US$2 Trillion economy by 2046. For that to be a reality there are many ifs and buts, which the government has not even started planning let alone addressing. The PTI 100 points agenda is starting to appear just that – an agenda. The fiscal and current account deficits pose serious threats to the economy. The Circular debt continues to rise. The government continues to borrow to function. The Stock Exchange continues to under-perform. There is talk of an Amnesty Scheme and the issuance of Panda Bonds. No this is not the PML-N days we are talking about; it is the PTI government. The economy needs major structural reforms and a long-term direction to set the course right and whether the Finance Minister likes it or not the IMF is the only viable route to start that process. After the failure of the Pakistan Banao Certificates to generate funding, it should be clear that Pakistan is losing the international standing in the financial markets and it is essential to establish itself in those international financial markets through the finalization of the IMF programme to improve its declining credit rating. It is all very well to be self-reliant, but the capacity has to be built up to achieve that objective and the current delays are doing more harm than good and raising the cost of any future borrowings. For now, it seems business as usual with some differences such as rising inflation, higher interest rates, low business activity, and an over-emphasis on corruption – which carries huge financial and reputational costs – and very little in terms of financial gains. The New in Naya Pakistan might start to resemble the Old very soon unless decisive action is taken on the economic front to resolve the macroeconomic vulnerabilities. Imran Khan has demonstrated high caliber leadership and he can deliver. He needs a back-up team to translate his vision into reality.
The average Pakistani is in a flabbergasted and stupefied condition as he digests what the media is feeding him. A former President is accused of treason and out of the country. Another former President is facing fake accounts and money laundering charges. A three times former Prime Minister of the country is in jail and facing more cases. A former interim Prime Minister and two other former Prime Ministers face charges on various counts. A former Chief Minister and Chairman of a major political party as well as the Public Accounts Committee of the Parliament is on bail and facing a battery of charges. Various assorted past and present ministers as well as the Speaker of a Provincial Assembly are under investigation and facing different charges. Politicians are threatening and using street power to demonstrate their popularity–some even invoking religion to protest events like marathons. Forced to his knees by a rapidly declining socio-economic environment the man on the street sees business activity at a near stand-still in response to an extractive FBR and an environment of threats. It would do wonders for the environment if all this activity were to be carried out only by the institutions concerned without a day by day and blow by blow parade on the media and if serious thought was to be given to some kind of closure so that Parliamentary activity begins in earnest and the focus shifts to the present and the future. The recent World Bank report has highlighted the four main areas that the country needs to tackle. The nation came together in the face of the threat from India—it needs to come together to chart out its future. Imran is being seen as the man who will rise above petty issues and take the country forward.