Amidst the worsening crises, the national search for remedies has intensified. However, the views about the future economic and political outlook and the possible correction course diverge widely as imponderable uncertainties continue to navigate virtually a rudderless ship.

Nonetheless, what may appear a confusing debate is rooted in ground realities. The solutions offered are of short-, medium-, long-term durations, while not always immune from conflicting interests.

The important thing is that the debate is also generating a breath of fresh air — some creative ideas that can bring a culture change in the country’s mode of governance, public service delivery, and better utilisation of natural and abundant human resources for socio-economic development.

Let us take first the optimistic view that the situation may improve incrementally here and there with no fundamental or meaningful changes, at least in the short to medium–term.

The next polls may not bring political stability because of persisting stagflation and the absence of national consensus on charters of economy and governance

This view gains currency from the after-tax earnings of the corporate sector recorded at Rs877.6 billion in the first nine months of the current fiscal year, up 8.8 per cent from a year ago. The data compiled and its analysis carried out by Arif Habib Ltd is based on the results of 89 of the top 100-listed companies, representing 93.1pc of the stock market’s capitalisation.

And official figures show that the direct tax collection shot up by 44pc to Rs2.5 trillion during 10 months of FY23, as compared to the same period of the last fiscal year. An analyst described it as the only success story in the domain of tax collection.

Bankers and currency dealers expect remittances for April at $2.5bn to help post a current account surplus for the second month in a row. But remittances declined by 10.8pc in the first nine months of the current fiscal year.

The trade deficit fell by 39.62pc to $23.71bn during 10 months of FY23 as compared to the same period last fiscal year. Imports of merchandise plunged by 28.44pc to $46.88b, however, exports also dropped by 11.71pc to $23.71bn. But ‘public debt risks remains high’ says the Economic Advisory Wings of the Ministry of Finance.

The International Monetary Fund (IMF) estimates that the government’s interest payments will increase to Rs5.5tr in the current fiscal year against the earlier estimate of Rs3.9tr. An analyst says this means that the State Bank of Pakistan policy rate would remain very high. To be successful over the long term, say researchers, a country must earn an amount that is at least equal to what it spends.

Judging by one year’s performance of the PDM government and persisting long-term macroeconomic imbalances, many see the political economy remaining stuck in a quagmire.

PML-N leader Shahid Khaqan Abbasi says it was impossible to deliver on promises within the current system of governance, and it needs to be ‘redefined.’

“We need a 360-degree rethink of industry, trade, taxation, monetary and fiscal policies.’ says Federation of Pakistan Chambers of Commerce and Industry President Irfan Iqbal Sheikh, describing the country’s short-term economic scenario as ‘extremely volatile, rickety, and uncertain.’

Bank credit to the private sector dropped to Rs229.92bn from July to April compared to Rs1.19tr of nine and a half months last fiscal year.

On the other hand, bank financing to state-owned enterprises (SOEs) has simultaneously ballooned to Rs249bn from Rs12bn. Pakistan’s SOEs, notes a World Bank report, are the worst in South Asia, and their losses are growing faster than their assets. This is making privatisation more difficult.

Owing to precarious foreign exchange reserves position and curbs on dollar movements, foreign companies’ outflow of profits and dividends during July-May have plummeted 86.6pc to $233bn as against $1.2bn a year ago.

We are not immune from international banking trends. Only hours after the First Republic Bank was rescued by JPMorgan Chase, IMF Managing Director Kristalina Georgieva said she expects more weaknesses to be exposed in the banking sector. Joseph Stiglitz says supervisory failures worsened the financial turmoil triggered by rapid interest rate hikes.

We are seeing somewhat similar ‘rescue’ operations in Pakistan. UAE investor Nasser Abdulla Hussain Lootah has raised his shareholding to 51pc and acquired management control of the Summit Bank by injecting Rs10bn fresh equity. JS Bank is reported to have moved closer to acquiring a 24.88pc shareholding of BankIslami Pakistan. United Bank says it is ’exploring a potential merger with Silk Bank.

A segment of the business community believes that the political situation will be in focus until the general elections take place. Disagreeing, certain analysts do not see the next polls bringing political stability in view of persisting stagflation and the absence of national consensus on charters of economy and governance.

It is common values and aspirations that build trust, cooperation and social cohesion, which are critical factors for the country’s economic and social development, says an eminent development economist. But here, power politics are a major hurdle.

Asked about the current crisis at the launching of his book titled ‘Pakistan: Origins, Identity and Future’, its well-known author Pervez Hoodbhoy said: ‘the system is about to change and collapse because no one wants to give us loans.’

Large and widening wealth gaps tend to lead to periods of greater conflict, especially when economic conditions become bad and people are fighting over a shrinking pie, says Ray Dalio, author of the book ‘Principles for the Changing World Order: Why Nations Succeed and Fail.’

Published in Dawn, The Business and Finance Weekly, May 8th, 2023