The electoral losses suffered by the ruling Pakistan Tehreek-i-Insaf in the local government polls in the ruling party’s stronghold of Khyber Pakhtunkhwa on December 19 validated what many political and economic commentators had long been warning its leadership against. The spiralling cost of living amid stagnating wages and growing unemployment has eroded much of the political capital of the party and its leader, Prime Minister Imran Khan.

       The admission of the party leaders from the province, where the PTI had created history in 2018 by winning the second consecutive term, that surging prices were a major factor behind their defeat in the first phase of the local elections shows the leadership had underestimated the growing public anger against the increasing costs of energy, food and other essentials.

       The coming 20 months leading up to next elections are going to be tough for the government, more because of its poor handling of the economy than the challenge thrown by the opposition

       That the increasing cost of life is imposing a crushing burden on the low-middle-income segments of the country’s population and that people are not happy with the government over its weak economic performance was quite obvious from the results of the recent public opinion surveys. A survey, the National Corruption Perception Survey 2021, by Transparency International Pakistan, shows that nearly 86 per cent of Pakistanis believe that their income had squeezed under the PTI rule and 92.9pc said inflation is ‘highest during the current government’. Only a very small number of responders 4.6pc and 2.5pc thought that prices had risen faster under the PML-N government during 2013-18 and under the PPP during 2008-13.

       The survey participants blamed the PTI government’s ‘incompetence’ as the main reason behind the spike in the price inflation and their shrinking incomes, with 50pc respondents calling the present administration incompetent. Some 23.3pc blamed the price hike on corruption and 16.6pc on lack of policy implementation.

       Many political commentators expect the electoral trend emerging in the first phase of the local government polls in Khyber Pakhtunkhwa to continue in other districts of the province during the next phase, as well as in Punjab in March/April. Not only that. The possibility of the PTI, which came to power on the promise of stabilising the economy, alleviating poverty and creating jobs, facing a strong backlash over the rapid rise in prices in the 2023 elections cannot be ruled out either.

       Although Imran Khan and his ministers have consistently blamed the recent boom in the international commodity inflation — especially energy and food — on the back of global supply disruptions owing to the Covid pandemic hangover for the domestic price hike, people largely remain unimpressed by such explanations.

       Economists have repeatedly accused imprudent government policies targeting rapid growth through monetary expansion and loose fiscal policy ahead of the next elections more for the increasing domestic prices than the global commodity boom.

       However, the script seems to have gone awry if the local election results from Khyber Pakhtunkhwa are any evidence. Even the announcement of its Rs120 billion price relief package for the low-middle-income people has failed to do the magic. The government’s economic troubles are rapidly turning into a political liability for Prime Minister Imran Khan. The public approval of the government is at its lowest as people complain about the surging cost of living in ways never seen before.

       The question now is whether the government has what it takes to reverse the emerging political sentiment. Many commentators argue that the political implications of inflation for the cash-strapped PTI government are huge and it does not have fiscal space to provide significant relief to people because of its financial constraints.

       The expected resumption of the International Monetary Fund (IMF) funding programme from next month will also likely further force the government’s hand. The government is already in the process of introducing the Supplementary Finance Bill 2021 to slap taxes to the tune of Rs350-400 billion as a prior action to the approval of the resumption of the IMF funding and is expected to increase the electricity prices in February/March. Both of these measures will produce more inflation just as the monthly bumps in petroleum development levy (PDL) on petroleum products.

       The political fallout of such unpopular, inflationary policies under the IMF funding programme would be immense as the majority of people and small businesses will find their income squeezed and their cost of living increased, with the major opposition parties — the Pakistan Muslim League-Nawaz and the Pakistan People’s Party — gearing up to exploit the widespread economic discontent in the country, particularly in Punjab. The next 20 months leading up to new general elections are going to be very tough for the government, more because of its poor handling of the economy than the challenge thrown by the opposition.

       Published in Dawn, The Business and Finance Weekly, December 27th, 2021