Economy Will Decide Imran’s Fate
Yousuf Nazar argues that Imran Khan’s political survival could be at stake if he is not able to deliver an economic turnaround and so far he seems to be failing.
Pakistan rupee’s plunge to a new low of 153.5 to one U.S. dollar coming just two days after the budget was announced appears to be a sign of disapproval by the markets. It has come in the backdrop of a fall of $1.1 billion in the foreign exchange during the month of May to just $7.8 billion.
For the first ten months of the financial year ending this June, Pakistan’s exports remained flat while the goods imports fell by just 5%. Although the current account deficit narrowed by $4.2 billion (26%), it was more due to a rise in the workers remittances and other items rather than on account of government policy.
That exports remained flat despite a 13% devaluation in the rupee is due to Pakistan’s narrow and increasingly uncompetitive exports base.
While the PTI government has blamed the previous government for Pakistan’s balance of payments crisis, its performance on the domestic front has been weak, to put it mildly and for which there is little excuse. Even the official Economic Survey, released a day before the budget, noted that the “consolidated fiscal position during first nine months of current fiscal year shows zero growth in total revenue and 8.7% growth in total expenditures over same period last year.”
The dismal fiscal performance has resulted in record level of the debt burden. This has left the government with no fiscal space for development projects in the new financial year. Next year’s tax revenue target of Rs 5.5 trillion (an increase of around 35%) is ambitious at best and fiction at worst given the economy is forecast to slow to 2.4% from 3.3% this year.
Debt servicing will eat up 52% of the target revenue and defence spending about 27%. The government will print money to finance the deficit fueling inflation even more.
The bottom line, for people, is expect things to get worse, not better. With a currency under continuing pressure, government borrowings out of control, house hold items inflation hitting close to 15%, and employment opportunities shrinking, next twelve months could be critical for Prime Minister Imran Khan.
Imran has a wafer-thin major in the parliament and his immediate test would be to get the budget passed. He might just get it through the National Assembly as a few members are in jail and he has the support of the establishment.
However, he does not seem to have much input in the economic policy and continues to focus on the “loot and corruption” of his political opponents.
He built his entire political career and election campaign on the slogan of corruption. His emotional speeches against corruption might buy him some more time with his core support base, but the establishment’s patience may seriously be tested if the economy continues to falter.
Already, Islamabad is abuzz with rumours as to who might be his successor. A senior official of a major Western government asked me if he is in charge. He seems to have lost control of economic and security (domestic and foreign) matters and is fast running out of his political capital. Imran’s political survival could be at stake if he is not able to deliver an economic turnaround. For Pakistan’s sake, I hope he does.
Yousuf Nazar is an independent investment consultant based in the UK with extensive experience in investment management, strategic planning, credit, and commercial banking.