Author Image

Do you have PML-N boxed conditions in? Business Registrar

Economic conditions will remain tight for next year. With energy subsidies cut, households and small and medium-sized businesses alike will feel the pain. The rise in oil prices last week is just the beginning of a difficult journey.

More modifications to come. Economic growth will slow significantly. Inflation must remain high while unemployment will increase. The longer the government stays in place, the more dim the prospects of the Pakistan Muslim League-Nawaz (PML-N) winning the upcoming elections. It appears as if the PML-N is boxed.

There is a theory that since the government raised oil prices (it took the hardest step yet), the Pakistan Democratic Movement (PDM) will complete the end of term.

The premise is that the government will be able to stabilize the economy and return it to a growth trajectory within 12-15 months. This is not the way economies behave. Just as it takes time to tighten measures to slow the economy, it is not in a jiffy. Those in favor of full-term governments are dragging the PML-N into quicksand. The longer they stayed, the harder it was for the party to come out.

It is a political paradox. Imran wants immediate elections because he believes the popularity of PTI is at its peak. PDM, too, thinks so. This is one of the reasons for the government’s postponement of the elections. But they ignore the negative externalities of the incumbent government (mainly the prime minister and foreign minister) that will lose credibility and popularity in the process.

The problem is that the PDM is a weak coalition with conflicting interests. PPP has nothing to lose. They are happy to stay and let the young groom bleed and enjoy the strength. There is a clear split in the PML-N camp. Nawaz is not keen on turning around. However, Shahbaz and some PML-N leaders wield power.

In short, the PPP is the net beneficiary if the government stays until the association expires its term while both the PML-N and the PTI may lose.

It’s a complicated situation. Then there is the mistrust at various levels and between different stakeholders. PML-N has a history of distrust of existing authorities. This lack of confidence persists. Recently, Imran is also not willing to trust the existing authorities. Then friction broke out between the factions of the Pakistan Muslim League – An London and Lahore. PPP and PML-N have a long history of being arch rivals.

The current setting is not a normal equilibrium. It is a kind of precarious equilibrium in which a small disturbance can lead to a massive change. Anything can happen in the next few weeks. For now, the forces’ only focus is on stabilizing the economy and avoiding a default-like situation.

Three precious months are wasted by foreplay with the International Monetary Fund (IMF). Pakistan international bonds are trading at a huge discount. There was a fear of the coin’s free fall. If that happens, it’s almost impossible for anyone to stop.

The economic crisis that Pakistan is facing in 2022 is not out of proportion (in terms of foreign exchange reserves SBP to current account ratio) compared to the crises of 1998, 2008 and 2018. One of the variables that makes it unique is that no political party is willing to bear the burden of hardship Economic. When PTI smelled a conspiracy it shifted the burden to PDM; While the senior leadership of the PML-N in London wants to pass this burden on to the caretakers. This political “stalemate” has created a fear of default.

The last straw that broke the camel’s back was the International Monetary Fund’s statement refusing to resume the program without increasing oil and electricity prices. The process has begun. Petroleum prices are now up by Rs 30/L. Expect another increase soon. More jumps will follow in June. Expect a sharp increase in electricity bills in July. The cost of fuel is very high. Energy is produced at rates ranging from Rs 24 to Rs 36 per unit on LNG and furnace oil.

The Fuel Cost Adjustment (FCA) averaging Rs 4/unit in the past six months is expected to be over Rs 7/unit in May which will be applied to the July bills. This will increase your electricity bill by about 15 percent. The problem is more serious in Karachi where K-Electric’s FCA is expected to be around 10-11 rupees/unit – an increase of 25-30 per cent in billing. Many small and medium businesses will not be able to survive at such a high cost. Families will find it very difficult to manage monthly budgets with increased spending on fuel and electricity.

So the budget must be tough. Tax credits should be removed. The Petroleum Tax (PL) can also be republished. New taxes may be imposed. Monetary policy will continue to tighten. Almost all major companies expect flat or negative volume growth next year. Companies will make less money and jobs may be lost. This will be on top of high inflation that has not yet peaked.

It is increasingly clear that the next 12 months for the current government will be very difficult. The common man’s economic challenges will provide enough ammunition for IK to mobilize a rally in July (or later), if the June general election date is not announced.

Are there indications that the government’s days are numbered? The government quickly passes bills. The prime minister’s speech over the weekend was boring. But the good news is that the IMF program will recover and the economy will slowly move toward a stabilization path. This is the first step. It remains to be seen what the post-budget political situation will look like and what the implications are for the economy.

Copyright Business Recorder, 2022

#PMLN #boxed #conditions #Business #Registrar

Leave a Comment

Your email address will not be published.