In the 1976 American election, Ronald Reagan ran against incumbent President Jimmy Carter. Reagan, a right-wing candidate, was initially considered unlikely to win.
However, Reagan understood a basic political truth: elections are never about challengers. During a candidate debate, Reagan asked Americans a simple question: Are you better off today than four years ago? Americans, because of the stagflation of the Carter years, answered that in the negative and Reagan went on to win the elections quite comfortably.
Although rational voters should look only at candidates’ expected future performance, political analysts have found that voters assess the prospect of future performance based on past delivery. Elections, therefore, are essentially a referendum on the incumbent government’s performance. If a national government has delivered – mostly jobs and affordability – it is rewarded. Otherwise, voters turn against it.
Political economists have developed models of American presidential elections showing that the votes an incumbent or his party gets depend primarily on three variables: economic growth, unemployment and inflation. If an incumbent has done well in these three factors, he (or his party) wins. Otherwise, he loses.
The PML-N remains unpopular today because, even after four years in the federal government, it hasn’t delivered on the economic front. Its ally Bilawal Bhutto Zardari has said that the PML-N is too scared to hold local bodies’ elections in Punjab.
Pakistani prime ministers don’t normally get a very long run or substantial institutional support. This prime minister has had both. Yet after four years of Mian Shehbaz Sharif’s government, the average Pakistani is poorer than he was four years ago. Let this sink in: while the world is marching on, we are regressing. Moreover, alongside negative per capita growth, we have also experienced the highest price surge in Pakistan’s history, with inflation raging at 78 per cent over four years.
This stagflation has pushed our unemployment rate to its highest level in over two decades, and along with it, our poverty rate to its highest in a decade. Unfortunately, 29 per cent of Pakistanis now live on less than Rs8485 a month.
This increase in poverty is especially tragic given that we had been able to achieve a continuous decline in poverty for 20 years. However, things took a turn for the worse in 2019, and now, for the past five years, both the number of poor and the percentage living under poverty are increasing. The PDM/PML-N government has had some successes (against India and in foreign policy) and some failures (in economic and energy policies). But if there is one glaring failure that earns it an overall F grade, it is this inexcusable annual increase in poverty over four years.
There is more. In 2024, the government announced a plan to double Pakistan’s goods exports by 2028-29 to $60 billion. In reality, exports have been lower every year than in 2022.
Every Pakistani agrees that we would be better off if we got out of the IMF tutelage. Yet how are we to service our foreign debt without IMF support if we aren’t able to increase exports? Unfortunately, this government has no plans to increase exports. Facing the highest prices of electricity and gas in the region, it is no surprise that our exporters keep losing to their competitors from neighbouring countries and our exports have declined.
It’s not just exporters who are floundering. The part of our national income that goes towards investment has been lower in the last three years than at any time since 1960. People just aren’t investing here at the rate at which they used to. But unfortunately, it is not surprising.
Our corporate and individual tax rates are some of the highest in the world. We are actively driving investment away. The Iran war, however, has given us another opportunity. Will this government be able to capitalise on it?
Of course, not everything is going down. On June 30, 2022 the total debt of our country was about Rs45,000 billion. This June it was Rs 85,000 bn, an increase of Rs40,000 in just four years. So, in four years, the current government has incurred almost 90 per cent of the debt taken on in the first 75 years. That’s quite a speed for taking on debt.
And it is not that this government is taking on debt because it is taxing us less. It is taxing us more and more. In FY2022, the total federal tax plus levy was Rs7500 billion. In the outgoing year, it was Rs14,500 billion. So the tax intake has almost doubled in four years. And the primary reason is rapidly growing federal and provincial expenditures, without any improvement in services.
This PML-N government has failed to create a political narrative or to achieve political popularity precisely because of its economic failure. So even though Pakistan has won a war against India and played a historic role in achieving a ceasefire in the Iran war, domestically, the government has been unable to move the political needle.
The government rightly claims that it saved Pakistan from default. It did so twice. And both times by getting an IMF loan. But that was three years ago. The last time we were close to default was in early 2023 and it was entirely the PML-N’s own fault; remember how we were staring down the IMF and then ended up devaluing the rupee by Rs40 in one day. That year, our exports also decreased by 15 per cent.
But since June 2023, when we entered the IMF programme, Pakistan hasn’t faced any default risk. Since then, the nation has been waiting for economic reforms. But none has taken place. Instead of reforms, the government has chosen to place the entire burden of austerity on the people.
People are being squeezed from both sides. On the one hand, there is record-high inflation, and on the other, there are high taxes that take away a large portion of our incomes.
Except for brief periods during the Russia-Ukraine and then the recent Israel-America-Iran wars, the inflation we have had in Pakistan is not due to high international commodity prices. The main cause of inflation has been the government’s own doing. The major factors of inflation are increases in the price of electricity and gas, and the imposition of a large and regressive levy in the price of petrol and diesel. In addition, three years ago, the government increased the sales tax to 18 per cent, and since then it has kept adding more items – like infant milk powder and pencils – to the sales tax net.
So if incomes are declining, poverty and unemployment are increasing and taxes and inflation are squeezing the middle class, is it any wonder people aren’t buying this government’s narrative?
If, over the last three years, the government had delivered even 4.0 per cent real income growth, kept inflation and unemployment under control, and made electricity and gas prices regionally competitive, people would have been satisfied. The government would have earned retrospective legitimacy.
But because this government has shown no vision, competence or innovative thinking, and hasn’t been willing to carry out any reforms, its popularity is trending in the same direction as Pakistanis’ income.
The writer is a former finance minister and general secretary of Awaam Pakistan.
