Pakistan: Shehbaz Sharif’s balancing act on subsidies and bailouts

The biggest dilemma facing Prime Minister Mian Shehbaz Sharif right now also explains why IMF (International Monetary Fund) bailout programs will never solve Pakistan’s debt problem. One of the first things he’s had to do as PM is reject an official summary for the largest ever fortnightly increase in petrol prices. The thing is, taking this very necessary economic step right now would be political suicide because Imran Khan set a time bomb in his last weeks in office.

Just when the no-confidence motion seemed unstoppable, he cut petrol prices by Rs10 per liter – less than two weeks after raising them by Rs12 – and froze the new price till the budget; due in July. Since that led to an immediate suspension of the IMF program, the $6 Extended Fund Facility (EFF), it also led a lot of onlookers to believe that Imran had priced in that he would not be around to present the budget.

But since now Imran is gone and Shehbaz is here, and the country needs to go back to the program as soon as possible, what does the new PM do about the subsidy that will cover all the cheap oil at the pumps? Resume the program, increase prices by a hundred-something rupees in one go because there’s no way the IMF will tolerate any subsidies at all, and get butchered now? Or let the economy suffer, keep the people happy for now, and push the day of reckoning just a little down the road, and get mauled even worse?

Imran might be laughing now, but there’s nothing new in what he did; abandoning the program that was signed eight months after he took office and tortured people with tax hikes and subsidy cuts with nothing to show at the end of the day. The PML-N (Pakistan Muslim League-Nawaz) government of 2013 went to the Fund in just four months, and the structural adjustment squeezed the people just as much, and in the end, it wasn’t completed because the political climate ahead of the next election didn’t allow the kind of fiscal discipline required to contain the budget deficit.

Before that, the PPP (Pakistan Peoples Party) government that was formed in 2008 also took eight months to start an IMF program, and also gave it up because power and tax sector reforms were leaving just too many people with long faces at just the wrong time. Pakistan had import cover of about 12 weeks when PPP came to power, seven weeks when PML-N was elected, and eight weeks when Imran Khan’s New Pakistan came into being, and seven weeks when he became the first Pakistani PM to be dismissed in no- confidence vote.

So, all we’ve really done in all this time is tax people and businesses to the eyeballs just to go round in circles. Still, we must keep going back to the IMF not just because the $6-8b per program it gives us often makes the difference between life and death for the economy, but also because being ‘on the programs’ gets us more and better loans from other institutions.

Yet the one difference between all those examples and now is that none of those administrations were formed during crises quite like the present one. Even as the economy stands on a knife-edge, Imran Khan is busy doing his best to whip up a storm that, he hopes, will bring civil society in conflict with state institutions like the judiciary and military because he didn’t like the way he was made to leave office.