The new government in Pakistan led by Prime Minister Shahbaz Sharif is facing great challenges economically, politically and socially.
Tackling the economy is perhaps the biggest challenge, compounded by the fact that the new government has a very short term – a maximum of August 2023 until the next general election, or a shorter period if elections are held earlier. It would be insufficient to take necessary drastic remedial measures before going to the people to seek a new mandate.
Take the case of oil subsidy only. In February, the outgoing Imran Khan government had announced a subsidy of Rs 21 per liter on petrol and Rs 51.54 on diesel, costing Rs 260 billion by June 2022. There was also a cut of Rs 5 per unit of electricity. These subsidies stalled the $6 billion IMF Extended Fund Facility (EFF) program. The challenge for Shahbaz Sharif will be to navigate between ending fuel subsidies – which would be very unpopular and provoke a strong public backlash – and continuing with them, which would be economically disastrous.
The current account deficit (CAD) has widened to over $13 billion during the first nine months (July-March) of the current fiscal. Analysts expect it to reach $16-18 billion in the current fiscal year ending June 2022. Such a large CAD would lead to devaluation, making imports more expensive and leading to inflation that had already reached 13% in April.
To avoid depletion of foreign exchange reserves, Pakistan would need USD 9-12 billion inflow in the current fiscal. This should be in the form of rollover and fresh loans from China, Saudi Arabia, commercial loans from consortium of banks and revival of IMF EFF.
The government has started talks with the IMF on this issue. It has also called for a nine-month extension of the EFF – from September 2022 to June 2023 – and an increase from $2 billion to $8 billion. There are indications the program could be revived, provided the fuel subsidy is reversed.
The measure by which people will judge the new government will be how it manages inflation, whether fuel prices rise, and how it copes with severe loads at the height of the very hot summer due to Pakistan’s inability to buy enough fuel. – Deals with shedding. To run your power plants.
With elections due in a year, the political cost of the unpopular measures would be huge for the government.
Key political challenges will include managing the outcome of Khan’s large rallies, his threat of confrontational politics and a long march in late May aimed at holding early elections.
Khan, which does not coincide with his democratic ouster, is bound to capitalize on popular unrest in terms of fuel prices rising. He has convinced himself that popular support will translate into votes based on his statement, as the military has clarified, an American conspiracy that ousted him.
What is troubling Khan is that the government is preparing to launch its own brand of accountability against him, just as he had launched a vicious accountability campaign while in opposition.
The government would be hoping that keeping up with the pace of the rallies would be difficult and, in any case, on its own, Khan would not eventually run out of steam. Khan would like that instead of allowing Sharif to remain in power, the confrontation leads to violence, forcing the military to step in.
As if all this was not enough, the government would be faced with the challenge of dealing with a deeply polarized and divided Pakistan, which is even more so than it usually is. It will be an enduring legacy of confrontational politics and vicious rhetoric from the past four years, which will brand his opponents as anti-nationals. One example was a report in Dawn in which a seven-year-old girl told her father that followers of Pakistan Tehreek-e-Insaf (PTI) and Pakistan Muslim League-Nawaz (PML-N) had started sitting separately in her classroom. .
The author is a member of the National Security Advisory Board. The views expressed are his own.
Originally published at
Pen 18
