Economic activity declines when there is uncertainty. A climate of uncertainty negatively affects consumers, businesses, investors, financial markets and most importantly, economic policymakers. They are compelled to make short-term policies in a shortened horizon that are suboptimal.

Like most developing countries, Pakistan faces great uncertainty. One may argue that these uncertainties, mainly originating from chronic political instability, have hampered Pakistan’s economic growth the most. Political compulsions under these circumstances have led to short-term macroeconomic policies and a more frequent change of policies than is desirable.

A cursory look at the past two decades of economic policymaking in Pakistan, for example, will reveal that most economic policies that the parties in opposition have opposed were policies they themselves had tried to implement when in power.

Let me give you a few examples of how the political economy of economic policymaking negatively affects our economic performance. The energy circular debt (ECD), which over the years, has accumulated to Rs 2.6 trillion (equal to two years’ defense budget) takes its origin from providing energy (oil, gas, and electricity) to consumers, due to political compulsions, at rates lower than the cost of imports, electricity generation and distribution.

In the run-up to the 2008 general elections, when international oil prices doubled (from $55 to $110) from January 2007 to March 2008, the Shaukat Aziz government increased domestic prices by only 9 percent. The impact of oil prices too was not passed on to the consumers.

International oil prices kept on increasing for the next few years. By 2011, Pakistan had reached a stage where the power sector required Rs 3 billion a day to buy fuel, whereas collection from consumers amounted to less than Rs 1 billion a day. The low collection was due to low tariffs as well as power theft. The result was that the private power generators stopped generating power for want of liquidity, and Pakistan witnessed an unprecedented load-shedding from 2008 to 2013.

The PML-N government (2013-2018) fulfilled its energy manifesto by ending load-shedding through Chinese investment in the power sector under the CPEC. When global oil prices dipped to a record low of $20-30 a barrel, the government had an opportunity to reduce the ECD by keeping the electricity tariff higher than the cost of production. It chose not to do so. There was instead an increase in the ECD, thanks to the “capacity payment charges” the government had to pay the independent power producers for not buying enough electricity from them.

The PTI government took the unpopular measure to curtail the ECD by demanding that consumers (barring life-line consumers) pay the cost of energy generation. However, it did not find implementing the decision easy in an unstable political environment. The prime minister has, on several occasions rejected OGRA’s/ NEPRA’s recommendations for an increase in petrol/ electricity prices (resulting in an increase in the ECD).

Global energy prices are rising amid the Russia-Ukraine crisis. However, the domestic prices have been frozen until June 30. The popular relief to the masses will come at the cost of ECD accumulation.

Like ECD, the deterioration in public sector enterprises (PSE) may also be attributed to chronic political instability. Political appointments have been a factor in massive losses. Successive governments have failed to privatise these because of political opposition to layoffs and allegations by the opposition of lack of transparency on the privatisation process.

The IMF is waiting for the result of the no-confidence motion against the prime minister to determine the next steps in its seventh review mission. The result will determine with whom the IMF engages on critical structural benchmarks.

The Supreme Court thwarted attempts by the Shaukat Aziz government to privatise Pakistan Steel Mills. The PPP government’s efforts to privatise met resistance from the PML-N and the JI. The PML-N government’s efforts to privatise failed due to opposition from the PPP, the JI and the PTI. The PTI government has faced criticism of its privatisation plans from the PML-N, the PPP and the JI. Resultantly, loss-making PSEs remain a perennial problem. The World Bank estimates that total liabilities of loss-making PSEs in Pakistan range between 12 and 18 percent of the GDP.

Levying a value-added tax and documenting all sectors of economy is another issue that got politicised. The PPP government tried to introduce it as a reformed general sales tax (RGST) but had to abolish the idea due to staunch opposition from the traders and the PML-N.

The PML-N government too tried to introduce the RGST but failed. The current government, acting through a mini-budget, introduced a uniform rate of GST by withdrawing most of the sales tax exemptions. However, it has faced tough resistance from the opposition parties who have promised to revoke some of the measures taken in the mini-budget whenever they come to power.

The State Bank of Pakistan Act amendment was also opposed. The PPP and PML-N governments had earlier amended the Act twice each as part of the IMF terms. The PPP and the PML-N have opposed the amendments brought in by the current government and vowed to reverse those.

The support price of wheat, maintaining artificially high exchange rates, manipulating the State Bank’s policy rate, delay in entering an IMF programme and accross the board energy subsidies are all examples of actions taken by governments under political pressure.

Pakistan has again been hit with heightened political uncertainty that has an economic impact both on the macro and micro levels. The IMF is waiting for the result of the no-confidence motion against the prime minister to determine the next steps of its seventh review mission. The result will determine with whom the IMF engages on critical structural benchmarks and quantitative targets under the current Extended Fund Facility programme.

Pakistan has asked China to roll over its debts and deposit an additional $10 billion in the State Bank of Pakistan to shore up its foreign exchange reserves. China, too, is waiting for the outcome of the no-confidence vote before responding to Pakistan.

The government is occupied with handling the current political crisis. It has postponed scheduled cabinet meetings for the fourth time in a row. Major decisions are being taken via ‘circulation’ that lacks the advantages of threadbare discussions at in-person meetings.

It can be argued that it is due to the ongoing political instability that the government has not been able to focus on strategies to counter commodity prices super-cycle and the brewing energy crisis as a result of the Russia-Ukraine conflict.

The opposition too is under pressure in its choice of positions on economic matters. Promise to bring down the food, fuel and dollars prices are clearly unrealistic. Whoever prevails in the parliament next week will have to live with a global commodity price-hike and a possible global recession.

Politicising economic issues has not served the country. There is a need for all political parties, both on the treasury benches and the opposition benches, and the powers-that-be to come to an agreement concerning the formulation of a medium-term macroeconomic policy framework.

All concerned should offer pragmatic solutions to the economic challenges facing our country instead of issuing utopian wish lists. Once such a medium-term macroeconomic policy framework is agreed upon, the opposition should allow the government to implement it without opposing it. When its opponents come into power, likewise the ruling party of today should be ready to support them in implementing the agenda.

An early end to political instability in Pakistan is unlikely. However, sincere efforts by all who matter can reduce the adverse effects of political instability on economic growth. The time to act is now.

The writer heads Sustainable Development Policy Institute. He tweets at @abidsuleri