Is Pakistan's government secure after concessions?
After luring a key estranged ally back in the ruling coalition, Pakistan's prime minister accepted demands on Sunday from the country's main opposition party, defusing a political crisis that brought his government almost to the brink.
January 10, 2011 / 22:47 IST
After luring a key estranged ally back in the ruling coalition, Pakistan's prime minister accepted demands on Sunday from the country's main opposition party, defusing a political crisis that brought his government almost to the brink.
Here are some questions and answers about what the recent rapprochement with the Pakistan Muslim League (PML-N) opposition party, and key ally the Muttahida Qaumi Movement (MQM), means for the Pakistani politics and its ties with international donors.Have the concessions strengthened the government's hand?For the most part, no. But they have brought an immediate, 45-day ceasefire in the constant brinkmanship style of governing preferred by Pakistani parties.After Prime Minister Yusuf Raza Gilani accepted its demand to withdraw a 9% increase in fuel prices, the MQM returned to the coalition, restoring the government's parliamentary majority.But this is at best a temporary reprieve. Gilani's Pakistan People's Party (PPP) has a history of caving to its opponents' demands in a bid to stay in power. If nothing else, it has proven that it is willing to cut any deal necessary.This makes it look weak and encourages more demands from friends and foes alike -- which means more manufactured political crises.Already, in addition to the fuel hike rollback, the MQM is believed to have demanded that elections be held for local offices currently filled by appointees from the PPP-dominated provincial government, so they can increase their patronage system and increase their street-level influence. Gilani has assured them this will happen, analysts say, but the MQM still refuses to return to the federal cabinet, in order to maintain its leverage over Gilani.Cutting so many deals to stay in power means any government policy or IMF reform package will last only until the next political crisis, giving investors and international donors no assurance of consistency.Is the main opposition PML- N still a threat?Not really. Even before accepting PML-N demands on Sunday, the PPP, by wooing back the MQM, had neutralised any major threats from the party of former Prime Minister Nawaz Sharif.Sharif's demands include reversing fuel price increases, cutting government spending by 30%, firing "corrupt" officials and forming an independent election commission and accountability body.Sharif said the PML-N would expel PPP officials from the Punjab province, the country's political nerve centre which Sharif's party dominates, if his demands were not met in 45 days.Speaking to reporters on Monday, Sharif sounded a conciliatory tone, saying he did not believe in the politics of "ultimatum". But PML-N's apparent softening is likely to change in a few months if the PPP's promises turn out to be no more than tactics to buy time, which most analysts believe they are.While a no-confidence vote is unlikely to succeed, the PML-N may prefer a slow political death for the government in order to weaken it before the 2013 elections. It is unlikely to push for early elections because the chances are it would win, and it does not want to be saddled with governing a country mired in militancy, and an economy in tatters.Will the concessions hurt relations with the IMF?Concessions such as reversing the increase in fuel prices and delaying a reformed general sales tax (RGST) send a very negative and damaging signal that rather than pursuing the reform agenda under the IMF framework, Pakistan is doing just the opposite. It reinforces the view that the country's leaders are focused on maintaining the coalition rather than on addressing social and economic ills.It also hurts Pakistan's bottom line, given that the heart of its problem is that the government needs to raise more revenue.The fuel price hike is one example. Pakistan linked its fuel prices with international oil prices in 2008 and while the fuel price reversal is not a violation of the loan programme, it was an important sources of revenue.If fuel prices are fixed at current levels due to political pressures, and international oil prices keep rising, the government will have to provide a fuel subsidy, increasing its spending.Given Pakistan's cash crunch, and its over-reliance on foreign aid, this move will be very difficult to explain to the IMF. The IMF and the United States have already indicated their disappointment with the fuel price reversal decision.Is future aid in jeopardy, given the lack of reforms?Not immediately. The IMF has been holding onto the last two payments of an USD 11-bn bailout package in an effort to goad Pakistan into making reforms, such as a concerted effort to increase its tax-to-GDP ratio, currently around 10%, one of the lowest in the world.But despite the failure to do so, Pakistan secured a nine-month extension for its USD 11 bn IMF loan programme last month, which Pakistan says it will use to implement the necessary fiscal reforms. But the IMF and other donors want Pakistan to not only raise revenue but also to "establish a track record of performance," as the IMF said in its country report last month.The fuel price rollback could be interpreted as a signal that Pakistan has no stomach for real fiscal discipline. It is too early to tell, however, whether the IMF and the United States would essentially abandon a key ally in the war against Islamist militancy. More likely, Pakistan's poor financial behaviour will continue to be tolerated and needed reforms to its economy will be kicked down the road. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
