As things appear at this point in time, a split mandate at the federal level cannot be ruled out, with no single party able to secure a parliamentary majority in the next general elections scheduled this year.

Notwithstanding the public policies pursued by mainstream parties, none of them have strong roots in all the provinces to qualify as a truly representative federal party.

In this era, a coalition government symbolises participatory democratic federalism in multi-ethnic countries like Pakistan. But the major partners try to manage policies on behalf of junior ones without honouring agreed points at the cost of even provoking public protests.

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And a Senate panel has put two bills seeking the creation of new provinces on hold, saying it does not reject the bills but they would be taken forward for further discussions.

Political polarisation appears to be the main hurdle, but the march of events may eventually unleash the potential to reshape things

The question thus arises whether the newly elected government will be stable enough to implement tough and unpopular economic and financial reforms against the backdrop of serious financial, economic and cost of living crises.

It may be recalled that the 1971 crisis served as a catalyst for the 1973 Constitution; the turmoil following the assassination of Benazir Bhutto created conditions for the long-delayed 18th Amendment and the 7th National Finance Commission Award.

Will the current crisis of a similar scale be the harbinger of further democratisation and devolution? Political polarisation appears to be the main hurdle, but the march of events may eventually unleash the potential to reshape things as was done in the past.

Unless elected representatives make a determined effort to work together at the federal level to resolve problems based on give and take, the centre’s writ would be further eroded.

And according to an eminent analyst, the federation will need to build inter-provincial consensus on major economic policy and reform issues.

Analysts also stress the need for improving the performance of the sub-federations.

It is argued that the contribution of the provinces in total tax collection in India is 35 per cent, while our provinces provide a mere 10pc. Incomes of large farms are particularly lightly taxed, whose revenue could be utilised for much-needed modernisation of agriculture.

The 18th Amendment needs to be fully implemented. “There is a need across the various federating units, even at the municipal level, to enhance their share of tax collection to meet their own obligations,” wrote recently former State Bank of Pakistan (SBP) governor Syed Salim Raza and Punjab Bank President and CEO Zafar Masud in a joint article titled ‘The case against rearrangement of local sovereign debt.’

For the medium- to long-term, they also suggest that the government borrowing has to be widened outside the banking system — distributing local currency government securities (locally and for overseas Pakistanis) via mutual funds, miniaturising them to be as small as a thousand rupee unit, to be sold by microfinance banks or national saving centres etc. This, they added, will help the government enhance the savings rates and get a better handle on sovereign debt pricing.

In the face of a severe liquidity crisis in external and domestic debt service, conventional policies to maintain financial stability are becoming limited, says a Bank of America Securities report titled ‘Pakistan Viewpoint — Running out of ‘Orthodox’ Options.’

The annual SBP Financial Stability Review for 2022 highlights the increased financial market volatility experienced in that year. It notes that the banking sector was the biggest investor in government papers while lending to the private sector had touched the bottom.

Despite the centre’s strenuous struggle for structural reforms and economic growth, the role of centralisation in shaping economic and political trends may weaken further after the elections.

Prime Minister Shehbaz Sharif already acknowledges that all sectors of society, classes and institutions would have to contribute and play their part in the country’s economic revival. But there is apparently no move to take serious steps in this direction. To quote political economist Murtaza Niaz, elite politics tends “to crush grassroots, egalitarian politics”.

There are, however, some positive trends which need to be sustained. Import curbs have slashed the trade deficit, and the $3 billion Stand-By Agreement (SBA) reached in June reduced the risk of default. On July 11, Saudi Arabia deposited $2bn with the State Bank of Pakistan.

Global Rating Agency Fitch earlier upgraded Pakistan’s long-term foreign currency issuer default rating to ‘CCC’ from ‘CCC-’, citing the country’s improved external liquidity and funding conditions following the International Monetary Fund staff-level stand-by agreement.

The default risks have eased but, as yet, are not out of sight. According to the latest report, the central bank has asked commercial banks to arrange dollars before opening Letters of Credit which, analysts say, will limit imports due to the non-availability of the greenback. Banks have also been asked to allow about 25pc higher imports.

In the given environment, former SBP governor Dr Ishrat Husain says the end purpose of an industrial policy should be to achieve competitiveness through higher productivity which brings greater profits for entrepreneurs, higher wages and better working conditions for workers, and more tax revenues for the government.

He believes that most of the factors hindering GDP growth, particularly in commodity-producing sectors — agriculture and industry — are institutional or policy-based, requiring reforms instead of additional financial injections.

Published in Dawn, The Business and Finance Weekly, July 17th, 2023