Shaky stability
Khurram Husain
Published September 19, 2024
Dawn
RARELY have I seen a situation like this one. The economy is finding an uneasy and shaky stability; as inflation peaks, the exchange rate looks like it might well stick, the backlog of unpaid dividends is being cleared, interest rates are on a downward trajectory from here on, the current account has returned to surplus, reserves are stable and so on. The list can get as long as one wants.
But the problems are growing. Rarely have we seen a situation where the economy stabilises while the government gets shaky. Usually, political and economic stability go together in our history. And mind you, I’m talking about economic stability, not growth. Paradoxically, periods of booming economic growth are also periods when politics becomes shaky.
Nawaz Sharif found himself facing disqualification right when his economic growth rates were hitting their peak and the first of the large mega projects his government had commissioned were getting ready for start of commercial operations. Likewise, Imran Khan found himself facing a vote of no-confidence precisely when the economy was hitting its peak growth rate of seven per cent.
But I cannot recall a government going wobbly when the stabilisation phase of the economy is peaking. That is where we are today. The economy has not fixed itself, nor is growth about to return. All that has happened is the worst effects of the bitter medicine one has to take to stabilise an out-of-control economy are now beginning to wear off.
RARELY have I seen a situation like this one. The economy is finding an uneasy and shaky stability; as inflation peaks, the exchange rate looks like it might well stick, the backlog of unpaid dividends is being cleared, interest rates are on a downward trajectory from here on, the current account has returned to surplus, reserves are stable and so on. The list can get as long as one wants.
But the problems are growing. Rarely have we seen a situation where the economy stabilises while the government gets shaky. Usually, political and economic stability go together in our history. And mind you, I’m talking about economic stability, not growth. Paradoxically, periods of booming economic growth are also periods when politics becomes shaky.
Nawaz Sharif found himself facing disqualification right when his economic growth rates were hitting their peak and the first of the large mega projects his government had commissioned were getting ready for start of commercial operations. Likewise, Imran Khan found himself facing a vote of no-confidence precisely when the economy was hitting its peak growth rate of seven per cent.
But I cannot recall a government going wobbly when the stabilisation phase of the economy is peaking. That is where we are today. The economy has not fixed itself, nor is growth about to return. All that has happened is the worst effects of the bitter medicine one has to take to stabilise an out-of-control economy are now beginning to wear off.
That’s all.
Usually this is the sweet spot. This is usually the time when the government of the day can start crowing about its achievement in having stabilised runaway fiscal deficits and falling foreign exchange reserves. Once interest rates start coming down — with IMF approval, as evidenced by the fact that an Executive Board meeting has been scheduled in the midst of the rate cuts — it usually means the worst is over.
They use bailouts and loans to fuel the country’s economy and repression to stifle the people’s will.
But this is the first time we are seeing a government struggle politically while having largely survived the worst of the economic pain. And as its political moorings start loosening, its capacity to stay on the path of stabilisation as required will weaken.
We are drowning in ironies today, but one to marvel at is how one of the strongest governments we have had in a long time in terms of its numbers in parliament is proving unequal to the task before it.
Despite its numbers in parliament and the strong backing of the establishment, this government is struggling to get things done that those with fewer numbers and less powerful backers in the past managed to do. This only means one thing: despite all its apparent strength in terms of its parliamentary arithmetic and powerful backing, this is probably the weakest government we have had in at least a quarter of a century.
How does that happen? How can a government be so strong by one standard, and yet so weak by another? This can only happen if the system of rule upon which the government stands itself is losing traction.
Systems are not build with force alone. They require buy-in from the population over whose affairs they preside. The current system of rule has taken a mortal hit on its ability to command its own population’s loyalties after more than two and a half years of the most ferocious inflationary fire the country has ever seen.
Nothing kills people’s faith in their system, their own lives and their future, like inflation. And the kind of inflation we have seen since May 2021 is literally unprecedented. The fire still burns, even if it has stopped spreading. It will be many years before people’s incomes potentially catch up with the loss their purchasing power has suffered over these years.
To compensate for the people’s loss of faith, the rulers of our time have resorted to gimmicks to deprive them of a voice in choosing their elected representatives.
When people protest this denial of fundamental rights, the rulers reply with repression, arrests, abuse. When attention is drawn to the violation of people’s rights, they respond with measures to silence the media, throttle the internet, police social media, and more repression. When the judiciary refuses to play ball with this escalating cycle of repression, along comes a constitutional amendment to bifurcate the apex court and make its crucial functions — constitutional interpretation — subordinate to the government of the day.
Thus kicks off a vicious cycle that eats away at the system’s legitimacy and weakens its foundations. Riding the whole wave is a group of leaders using the oldest of the old playbooks that has always been used in Pakistan. They use bailouts and loans to fuel the country’s economy and repression to stifle the people’s will. Historically this has worked, but only partially. Military rulers in the past managed to get large, concessional inflows with which to fuel the economy while engineering the local political landscape to their liking.
But this time it’s not working, and that is why the situation looks unique. The repression is not silencing the people’s will, and no foreign partner is stepping in with a bailout. A people burdened with inflation and repression at the same time will not be enthused about being part of the system that rules them. And the longer this state of affairs continues, the more the government will lose traction even as it succeeds in stabilising the macroeconomic indicators.
There is a lesson here for those who have not forgotten how to learn. Pakistan is not like one of those countries where a single dictator has ruled for three or four decades at a stretch. The demand for the ruler to earn his or her right to rule through the ‘just consent of the governed’ is strong here.
Less than eight months into its tenure, and one of the (arithmetically) strongest governments we have had in decades is already old and infirm. Time to read the writing on the wall.
The writer is a business and economy journalist.
khurram.husain@gmail.com
X: @khurramhusain
Published in Dawn, September 19th, 2024
Usually this is the sweet spot. This is usually the time when the government of the day can start crowing about its achievement in having stabilised runaway fiscal deficits and falling foreign exchange reserves. Once interest rates start coming down — with IMF approval, as evidenced by the fact that an Executive Board meeting has been scheduled in the midst of the rate cuts — it usually means the worst is over.
They use bailouts and loans to fuel the country’s economy and repression to stifle the people’s will.
But this is the first time we are seeing a government struggle politically while having largely survived the worst of the economic pain. And as its political moorings start loosening, its capacity to stay on the path of stabilisation as required will weaken.
We are drowning in ironies today, but one to marvel at is how one of the strongest governments we have had in a long time in terms of its numbers in parliament is proving unequal to the task before it.
Despite its numbers in parliament and the strong backing of the establishment, this government is struggling to get things done that those with fewer numbers and less powerful backers in the past managed to do. This only means one thing: despite all its apparent strength in terms of its parliamentary arithmetic and powerful backing, this is probably the weakest government we have had in at least a quarter of a century.
How does that happen? How can a government be so strong by one standard, and yet so weak by another? This can only happen if the system of rule upon which the government stands itself is losing traction.
Systems are not build with force alone. They require buy-in from the population over whose affairs they preside. The current system of rule has taken a mortal hit on its ability to command its own population’s loyalties after more than two and a half years of the most ferocious inflationary fire the country has ever seen.
Nothing kills people’s faith in their system, their own lives and their future, like inflation. And the kind of inflation we have seen since May 2021 is literally unprecedented. The fire still burns, even if it has stopped spreading. It will be many years before people’s incomes potentially catch up with the loss their purchasing power has suffered over these years.
To compensate for the people’s loss of faith, the rulers of our time have resorted to gimmicks to deprive them of a voice in choosing their elected representatives.
When people protest this denial of fundamental rights, the rulers reply with repression, arrests, abuse. When attention is drawn to the violation of people’s rights, they respond with measures to silence the media, throttle the internet, police social media, and more repression. When the judiciary refuses to play ball with this escalating cycle of repression, along comes a constitutional amendment to bifurcate the apex court and make its crucial functions — constitutional interpretation — subordinate to the government of the day.
Thus kicks off a vicious cycle that eats away at the system’s legitimacy and weakens its foundations. Riding the whole wave is a group of leaders using the oldest of the old playbooks that has always been used in Pakistan. They use bailouts and loans to fuel the country’s economy and repression to stifle the people’s will. Historically this has worked, but only partially. Military rulers in the past managed to get large, concessional inflows with which to fuel the economy while engineering the local political landscape to their liking.
But this time it’s not working, and that is why the situation looks unique. The repression is not silencing the people’s will, and no foreign partner is stepping in with a bailout. A people burdened with inflation and repression at the same time will not be enthused about being part of the system that rules them. And the longer this state of affairs continues, the more the government will lose traction even as it succeeds in stabilising the macroeconomic indicators.
There is a lesson here for those who have not forgotten how to learn. Pakistan is not like one of those countries where a single dictator has ruled for three or four decades at a stretch. The demand for the ruler to earn his or her right to rule through the ‘just consent of the governed’ is strong here.
Less than eight months into its tenure, and one of the (arithmetically) strongest governments we have had in decades is already old and infirm. Time to read the writing on the wall.
The writer is a business and economy journalist.
khurram.husain@gmail.com
X: @khurramhusain
Published in Dawn, September 19th, 2024
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