Inflation nightmare

LAHORE: The challenges the next elected government faces would be insurmountable both politically and economically. To move the economy forward, the government would need full cooperation from across the political spectrum.

Much would also depend on how the new government is formed, which would determine the direction of its policy. In the case of a coalition setup (which is very likely), the government would face pressure from coalition partners for non-prudent economic measures to please their electorate. The firmness of the head of the government in remaining on a prudent path would determine the fate of the economy.

It is an understatement to say that our economy is in a comfortable zone. In fact, it has never been in worse condition than any time in our history before elections. The economy is barely afloat. Foreign exchange reserves are being managed through controlled imports. Economic growth is hostage to controlled imports. Pakistan badly needs high growth, which does not look possible in the current scenario.

The new government's main priority should be to reduce inflation. Without substantially reducing inflation, it would not be possible to provide relief to the masses. Our major expense is debt servicing, which requires Rs 4.2 trillion rupees every year. The major contributors to the high debt servicing expense are the extremely high interest rates. Interest rates are high because of very high inflation. If the government succeeds in reducing inflation by half by year-end, that could reduce debt servicing expenses by over one trillion rupees.

Relief to the masses would only be possible if the new government obtains an absolute majority and is not dependent on coalition partners. Even in that case, it will have to take extremely difficult steps, such as eliminating all tax exemptions and removing all discretionary powers.

Both steps would hurt the elite who benefit from those exemptions, as well as the ruling elite and top bureaucracy who deny a level playing field to the downtrodden who have no influence. The new ruler would have to understand that Pakistan needs complete rule of law, and they should not enjoy any discretion that allows them to bend the rules. Reforms begin with oneself, just as charity begins at home.

We need sincere leadership whose priority is people's welfare. The new government cannot afford to create an upheaval by taking all corrective steps at once. It should first take steps that impact the powers of the rulers and elite and then slowly implement its reform program step by step.

The new government cannot afford to annoy the IMF for the time being. It must make it clear to exporting industries that no undue concessions involving government money will be given to any industrial sector. It must announce a long-term (at least ten-year) industrial policy to pave the way for investments in mega industrial projects. Big investors need two to three years in studying the business environment, planning, and making a business plan before going ahead with commissioning the project. In the remaining five to six years, they would be able to operate their projects hassle-free without any fear of policy changes.

Relief to the electorate would be possible in the fourth and fifth year of the government if it stubbornly adheres to the right policies in the first three years.