Election scenario and Economic Risk

Dr Maleeha Lodhi

In recent months political indicators and anecdotal evidence has suggested that the approaching general election will be a three-way contest – between the Pakistan People’s Party, Muslim League-Nawaz and Tehreek-e-Insaf – and not a two-party race. Support for this proposition now comes from a public opinion survey conducted recently by the International Republican Institute (IRI).

The poll asked respondents in a nationally representative sample which party they would vote for if elections were held next week. 28 percent said they would vote for Nawaz Sharif’s Muslim League, 24 percent for Imran Khan’s party and only 14 percent for the PPP. If this does happen at election time, months away and likely in spring 2013, it would mark a major realignment of the country’s politics.

Party leaders have seized on what is politically advantageous to them in this survey and rubbished what isn’t. This is to be expected and no different from what happens the world over. But there is another aspect to the survey’s findings that merits consideration. The division of the vote between three main contenders and assorted smaller parties could also produce a very fragmented result. An election stalemate would make government-formation a more protracted affair than any one envisages. This would delay urgent policy action on the economy, which according to all projections, will then be on the brink of breakdown.

Drift, procrastination or a shaky coalition unable to take bold and timely decisions could drive a precariously poised economy over the cliff. Will politics and economics collide and stymie efforts to avert such an eventuality? Can the election outcome help to head off a raging economic storm?

These questions – vital to the country’s future – have no ready answers. Before examining them let us first consider the survey’s findings and what can be extrapolated from them about likely election scenarios. As the IRI acknowledges its poll is a snapshot in time. It cannot therefore be deemed to accurately foreshadow the outcome of the actual vote. Elections have yet to be announced and much will change once campaigns are underway.

The IRI poll also indicates this by recording a high proportion of uncommitted voters. 18 percent don’t know which party they will vote for. This suggests a sizeable swing vote that is up for grabs for any party able to tap it. A large swing vote also makes election forecasts hazardous and the outcome unpredictable. With these caveats, let us look at the survey’s findings.

A key finding is crumbling public support for the ruling party. This is consistent with the general perception in the country and the poll’s other findings. For example, 91 percent of respondents believe the country is headed in the wrong direction – double that in 2007. This high level of public disaffection reinforces that found in surveys conducted by Gallup Pakistan and Pew research. In the IRI survey, 74 percent say their economic situation has worsened during the tenure of the PPP-led coalition, rising sharply from 51 percent before the party assumed power. Unsurprisingly 74 percent name the economy and energy shortages as top priority issues. This too accords with media reports of growing public anger with incumbents.

If voting in elections even broadly mirrors the IRI’s findings, the PPP could be headed for a historic defeat and the prospect of being reduced to a rural Sindh party. In the battleground province of Punjab, the PPP does really poorly in the poll and appears no match for either the PML-N or PTI. The qualifier here is that a survey of national attitudes/intention to vote does not capture constituency-by-constituency dynamics in which vote splitting between the PML-N and PTI could benefit the PPP.

Another revealing aspect of respondents’ answers that has a bearing on post election coalition building is this. The PML-Q emerges as the least favourite party nationally, a likely reflection of public rejection of its opportunistic politics. In Punjab only 2 percent say they will vote for the party. Even if this is partially discounted as the PML-Q has little ‘brand’ identification and is associated more with locally ‘influential’ individuals, other indicators also suggest its electoral future isn’t bright.

Voting intentions of respondents in Khyber Pakhtunkhwa province indicate that the Awami National Party (ANP) also faces a rout with the PTI emerging as the most popular there. If this opinion holds till the election, it will mean among other things, that the party that wins, or emerges as the single largest nationally, will have far fewer partners among smaller parties with whom to build a coalition. Two of the PPP’s present allies are likely to be diminished if not eliminated if just some of these poll numbers translate into reality.

This is important because there is no indication that Pakistan’s era of coalition governments is about to end. The pattern in previous elections, including in the 1990s and successive opinion surveys, suggests that no party is likely to win an overall majority. And like the parliament elected in 2008, the next will also be a hung one.

But the challenging scenario that could emerge from the election is of a highly fractured vote that gives no party the ability to easily form a government because of the unavailability – or defeat – of the usual alliance partners. The only way then for the party that wins a plurality to assemble a working majority would be to invite one of its two main rivals to join or support its coalition. The likely refusal by these parties could produce a prolonged political impasse. This would bring policy paralysis.

The economic consequences of political gridlock and uncertainty will be especially grave. This is because an economy already in the critical ward will, by the time of elections, require quick and decisive action to prevent its slide into an abyss. The onset of the political season has already led a reform-averse government to avoid taking necessary remedial measures to address the worsening budget and balance of payments deficits.

The perilous state of public finances is being exacerbated by several negative trends, none of which are likely to reverse in the months leading to elections. Internal and external financial imbalances are worsening, inflation remains high, national debt has hit a record level, the fiscal deficit is at its highest since 2008 and energy shortages continue to exact a heavy economic price.

The greatest danger still comes from the country’s rapidly deteriorating external position reflected in the sharp rise in the current account deficit and steady depletion of foreign exchange reserves.

Overseas remittances and declining export proceeds are not enough to meet the balance of payments’ financing requirements especially as net inflows have been drying up and foreign direct investment has plunged to a historic low. With more repayments to the IMF due and other external obligations to meet in the first quarter of 2013, reserves will dwindle to a precarious level. This will push the country to the edge of a foreign exchange crisis and towards external debt default.

Economic projections suggest this situation might well coincide with the election or emerge immediately after. The only way then to escape a financial meltdown would be to seek emergency financing from the IMF. But this will need both a new government in place and in a position to take tough ‘prior’ actions that a fresh Fund programme will require. If at this delicate juncture there is delay in government formation and prolonged political deadlock the consequences could be disastrous for the country.

The possibility of a political outcome inconsistent with the requirements to reform the economy and save it from collapse ought to urge all political actors to think as much about the country’s economic future as their own partisan interests. They need to devise strategies and consider post-election cooperation to avert this grave danger to the country’s stability. Prevailing in the electoral contest will be in vain if the battle for Pakistan’s economic survival is lost.

Source: Election Scenario and Economic Risk