Imagine yourself waiting in the hospital hallway as your loved one struggles in the ICU, taking the last breaths of their life. The weight of uncertainty presses on you, wondering whether the doctor will deliver news of improvement or deterioration. In such moments, the most assuring sensation is gaining knowledge of the outcome, regardless of whether it carries the sting of pain. This analogy perfectly mirrors our current politico-economic situation.
Pakistan finds itself at a critical juncture, grappling with a myriad of challenges ranging from a faltering economy and volatile exchange rate to political uncertainty, minimal FDI, and strained foreign relations. These predicaments, however, did not emerge overnight; they are the result of years of negligence, incompetence, and intervention by certain sectors. Unlike in developed nations, where the will of the general public spearheads national direction and policymaking, in Pakistan, the military-politico elite and “babocracy” often dictate the course of affairs. Such disruption has inflicted significant damage on our economic system, undermining the growth of genuine democracy over the years.
To put things into perspective, a state is a moral entity, a confederation of its citizens, whose laws reflect the general will and whose ultimate goal is the liberty of its people. As Rousseau noted, it is essential for a state to have the utter consent of its polity to function properly-a scenario that seems elusive in Pakistan due to a complex interplay of influence and bureaucratic control. Common people, preoccupied with basic survival needs, find themselves on the sidelines.
A state is a moral entity, a confederation of its citizens, whose laws reflect the general will and whose ultimate goal is the liberty of its people.
We are stuck in this vicious loop of power struggle mainly due to our distinctive historical development. Post-independence, unlike India, the most potent political force in Pakistan (Muslim League) fell apart after the death of its supremo, M.A Jinnah. Well-established institutions that had influence were Railways, General Post, and the Military. The interventionist stance perpetuated a class that fortified itself to rule for years to come, damaging the rhythm of political stability, democracy, and economic policies.
Analysts often argue that these interventions are for political reasons. I, on the other hand, have always refuted this cliché and maintained the view that these are entirely for economic reasons. Politics is just a tool to achieve their economic goals. It is the vast business empire and immense wealth that is the material of their involvement in politics. The reason why they primarily intervene is economical in the sense that they remain in the best political position to serve their financial interests.
Economic consequences of these interventions are evident in our current state of affairs-a market in disarray, posing challenges for the government, investors, and general public alike. The fluctuating Pakistani Rupee reached a reval of PKR 307 three months ago, alarming policymakers in the capital. Actions were taken and the manoeuvre of boys, Gohar, and regulators went on for a while as fear of arrest for illicit hoarding ran through the open market and some long-awaited structural changes occurred. The open market fell in line with interbank FX, making interbank comparatively attractive and diverting a huge chunk of inward remittances through financial institutions. An increase in registered inflows strengthened PKR and it appreciated around Rs. 1/day until reaching its recent lowest Reval of 276.83 on October 16, 2023.
While this initially led to a surge in inflows and strengthened PKR, the situation ended abruptly and started evolving in a very interesting way. Excessive forward and spot-ready booking by exporters to minimize losses dried up future inflows and the anticipation of the USD/PKR rate dropping to 250 prompted importers to pile up outflows. Although SLA has been signed by both parties (Pakistan & The Fund) and USD 700 million (SDR 528 million) subject to the approval of IMF’s executive board is expected soon, dwindling swaps in the FX market, dried up exports, and piled up imports have kept PKR swinging in the 283-285 region for the past 2 weeks. As of now, an extension of SFD’s $3 Billion (already placed in SBP) until next year has thwarted the depreciation to some extent and improved market perception in favour of PKR. Due to looming debt repayments of around $8 billion in FY 2024, this honeymoon period will reverse expectedly in the last week of December and PKR against USD will depreciate, signalling a dire economic outlook for Pakistan.
To achieve economic well-being, various measures are crucial, with none more fundamental than ensuring political stability and genuine democracy. Structural changes and curtailed red tape are imperative at both micro and macro levels for creating a conducive business environment. Implementing a progressive taxation system, coupled with rigorous digital record-keeping at both federal and provincial tiers, is the need of the hour. This approach enhances financial transparency and accountability, fostering a more robust economic foundation. In essence, the Central Bank should maintain interest rates in positive territory. Working in tandem with the Capital Markets regulator, it should also assume an active role while minimizing interference to instil confidence and foster a laissez-faire atmosphere. These concerted efforts at various levels will contribute to a sustainable and thriving economic landscape. As the father of Economics aptly noted,
“The government’s role is to protect the rights of the individual, rather than regulating business in any way.” – Adam Smith
The writer is a banker who graduated from LSE. He tweets @SohaibAliCH1.