Daunting challenges facing the caretakers

The caretaker government has stepped in amidst massive economic and political challenges demanding promulgation of an ‘economic emergency’ in order to arrest the slight.

The government’s mandate — by taking into consideration the ground realities — is expected to extend far beyond its constitutional mandate of facilitating elections in the country as fair, neutral and independent umpires. In the coming months the economic avalanche may compromise the state’s political priorities at a price difficult to fathom at the moment.

The emerging tussle between the ones demanding elections within 90 days and those aiming for a longer stay of the caretaker government is expected to escalate in the coming months, adding to political uncertainty with consequences on the nation’s economy. The trade-offs between economic and political compulsions will be extremely difficult.

The IMF mission is expected to hold the first review in October or November on the basis of official macroeconomic figures for the first quarter (Jul-Sept) period of the current fiscal year. Pakistan and the IMF struck a $3 billion bailout package under Standby Arrangement (SBA) in July 2023, out of which Islamabad has so far secured $1.2 billion as upfront installment. Now, two reviews would be done to release the remaining $1.8 billion till the end of March/April 2024.

Reviewing with the IMF would be challenging as things in the meantime are not moving in the desired direction; notably, the power sector, government revenue generation, rupee value, public sector enterprises, investment, consumer and market sentiment.

Pakistan and the IMF this week held virtual talks on the overall losses of the energy sector, especially in the context of reducing the circular debt during the current fiscal year.

The circular debt continues to rise in the power sector and currently stands at Rs2.5 trillion. Apart from following the regimen of increasing the petrol prices and electricity tariffs every few months to manage the circular debt, the power sector has moved from bad governance to despondency and now towards an absolute surrender, awaiting the inevitable collapse of the system.

Despite a 26pc increase in base uniform national tariff with effect from July 1 of this year, there appears to be no respite in sight for power consumers as distribution companies (Discos) have sought permission to extract almost Rs30 billion more from their consumers next month.

The Central Power Purchasing Agency-Guaranteed (CPPA-G) and Discos have filed a joint petition with the National Electric Power Regulatory Authority (Nepra) for an additional fuel cost adjustment (FCA) of Rs2.07 per unit in the billing month of September.

A recent meeting of the Senate Standing Committee on Power was informed that the Power Division has suffered a loss of Rs470 billion due to non-cooperation of the provinces, probably on account of electricity theft and non-payments by consumers.

The committee is reported to have advised the shift of power distribution companies from the federal to provincial domain - a sign of utter helplessness and surrender to something utterly unworkable.

Revenue generation, largely expected out of Large-Scale Manufacturing and Real Estate, is under tremendous pressure. One of the largest auto assemblers has decided to once again completely shut down its plant from August 25 to September 06, 2023 owing to supply chain disruptions. In the fiscal year 2022-2023, due to a challenging environment characterised by low consumer purchasing power, high input costs, increase in duties and taxes, turbulent rupee value, the demand for the auto sector has continuously declined.

The real estate industry, with only few transactions, is virtually at a standstill; notably, in Karachi — the centre of real estate transactions in the country.

The officiating President Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has stated: “the entire business, industry and traders’ community of Pakistan are of the view that the Section 7E introduced in Income Tax Ordinance (ITO) 2001 for the real estate sector has categorically proven to be not only chaotic for the economic activities but also futile and ineffective, as it has only generated Rs 10 billion in the first year of its implementation. We have lost much more in investor sentiment of the domestic and overseas Pakistanis alike as far as the real estate sector is concerned. ...”

Progress on privatisation and/or restructuring of loss-making state-owned enterprises (SOEs) is not in public knowledge while the apathy on this account is. Reportedly, PIA has grounded 11 aircraft, including three of its Boeing 777s, as the national flag carrier faces a serious financial crisis due to the uncontrolled flight of dollars and increase in prices of petroleum products.

According to sources, the airline, which operates around 30 aircraft, has been facing serious difficulties in procuring spare parts for the past three years due to scarcity of funds, which has resulted in the grounding of 11 planes.

The change of regime led to removal of administrative lid on the actual value of rupee. This week the rupee traded at an all-time low of Rs312 against the US dollar in the open market and breached the barrier of 300 in the interbank; widening the difference to a staggering Rs12 per dollar.

These are, only a few of the immediate challenges for the caretakers that demand immediate resolution, notably, by the newly inducted Minister for Finance Dr Shamshad Akhtar, who is well familiar with the economic and fiscal dynamics of the country, though since the times when the economy and fiscal vulnerability was much more at ease.

The caretaker government is in a bullish euphoria. Gohar Ejaz, the caretaker Federal Minister for Commerce and Industries, has announced the ambitious goal of boosting the country’s export to $80 billion during his tenure. He voiced concerns regarding subsidies granted to state-owned enterprises and emphasized his commitment to gradually phasing out these subsidies.

“I am steadfast in my resolve to breathe new life into our commercial and industrial sectors,” Minister Ejaz affirmed. He revealed his plans to launch flagship projects within the Special Economic Zone, with a specific focus on the garments sector.

Achieving an export target of $ 80 billion within this financial year would be a remarkable feat, but short of a miracle in these times when the export industry is under tremendous pressure and the government is falling short in achieving the export budget of $ 30 billion.

These are testing times for the nation. Only a sane approach in the best interest of the nation and its people offers a fair chance for the country to move out of the crisis with minimal damage.

Copyright Business Recorder, 2023

Farhat Ali

The writer is a former President, Overseas Investors Chamber of Commerce and Industry