IT seems that the rumours about Ishaq Dar being interim prime minister can be sourced back to Ishaq Dar himself. The other big parties to the decision have distanced themselves from the idea, including the PPP and the Leader of the Opposition.

What is more instructive here is the light the episode casts on the perceived wrangling underway between the civilian leadership and some quarters, with each side apparently wanting the interim government to be composed of people selected by themselves. Each has good reason for this.

One argument is for an extended caretaker regime, with a focus on stewarding the IMF programme and advancing the Special Investment Facilitation Council. The scale of the adjustment envisioned in the new IMF programme is large, possibly one of the largest undertaken in recent decades.

On the fiscal side, for example, what needs to be done in the ongoing fiscal year is more or less equal to what was done in FY20 (going by the primary balance adjustment). That was the year when Hafeez Shaikh was brought in to replace Asad Umar, and the country was put through one of the most stringent economic adjustments it had ever undertaken.

The current adjustment is no less in size, given that back then the primary balance was to improve by 1.8 per cent of GDP and this time it has to improve by 1.6pc of GDP. That time also saw interest rates climb to beyond 13pc, prompting howls of protest from the business community, and saw a steep devaluation of the exchange rate. This time, too, interest rates are far higher, and could see further hikes, and another round of steep devaluation is very likely in the fiscal year ahead, regardless of how many inflows arrive from bilateral partners.

The Fund programme is not an end goal. It is a bridge to take the country over troubled waters.

In a nine-month IMF programme, there is zero time to waste, especially seeing how much needs to be done. Complicating things further, the present programme is set to be implemented by three separate governments — the present one, an interim one, and then the newly elected one, assuming elections are held on time.

This presents strong ownership problems. The next review of the programme is due in November and the tranche is scheduled to be released by early December, assuming the review is passed. The review itself will be based on end-September data.

Consider what this means. The interim government will have to focus its mind on ensuring end-September targets contained in the programme are adhered to, since the release of the next tranche will depend on this. The incoming elected government will have days in which to complete the review, based on the data and results left behind by two preceding governments.

The many ways in which the incentives are misaligned are unprecedented here. We have never had a situation where an elected government enters power midway through the implementation of an IMF programme.

There was one possible parallel in 1993 where the interim government had negotiated the programme and the elected government had to implement it. But even then, the incoming government had to oversee the first review, meaning they had to start implementation, not step in midway.

The stakes have rarely been higher. An authority no less than the managing director of the IMF has said if Pakistan fails to complete this programme the country will have to undergo debt restructuring. The staff report says the risks facing the programme are “exceptionally high”.

“Downside risks to the baseline and programme implementation are exceptionally high,” the staff report reads. “Amplified by the tense political environment, policy slippages could undermine programme implementation, in turn jeopardising macro-financial and external stability and already stretched debt sustainability.

External financing risks are exceptionally high and delays in the disbursement of planned external financing from IFIs and bilateral creditors pose major risks to a very fragile external balance given the extremely limited buffers.“

The number of things that could go wrong is so large, and the balance of forces ranged against programme’s success so formidable that it is hard to see how the programme could proceed smoothly given the multiple changes in government, coupled with the charged politics arising from the effort to deal with Imran Khan and the PTI.

This is why there is subterranean pressure building up for an extended caretaker set-up, to ensure that programme implementation can be seamless. But this idea creates another problem.

An extended caretaker set-up would be a terrible setback to the primary task of reconstituting democracy in this country, which currently lies in a state of severe disarray. And without a reconstituted democracy, we cannot have a government with the depth required to undertake the tough task of reforms that will be necessary following the implementation of the current Fund programme.

One big mistake to avoid here is to see the Fund programme as some sort of an end goal, worthy of sacrificing everything for. It is not an end goal. It is a bridge to take the country over troubled waters.

The real journey begins on the other side of this bridge, where everybody knows another, longer Fund programme will be required to steer through the tougher, deeper reforms that alone can ensure Pakistan does not land up on the brink of default again. And for that job, a properly settled elected government is the only path, because it alone can bring the depth and mandate and create a sense of ownership through consensus necessary for success.

A big challenge is shaping up for the democratic forces of this country now. Can they manage the transitions ahead while keeping the economy on an even keel?

Only if they can achieve this will they be in a position to wrest back the prerogative that was snatched from their hands in 2017, and relaunch Pakistan’s march towards democracy that began under the spirit of the Charter of Democracy.

The writer is a business and economy journalist.

khurram.husain@gmail.com

Twitter: @khurramhusain

Published in Dawn, July 27th, 2023