Daily Times

A debate on the economy has started and it has led to another secondary debate on the perceptions regarding the appropriateness of forums and public officials who have recently highlighted issues regarding the economy. The debate on economy has shifted the focus from the proceedings of judicial cases of the PML-N leadership, yet it gave away to another discussion on narratives of jurisdiction being contested.

Essentially, the story of the ongoing debate on economy revolves around the high current account of deficit propelled by the ballooned increase in imports outstripping exports and supported by an over-valued exchange rate. The World Bank’s South Asia Economic Focus 2017 report sums up Pakistan as follows; “In Pakistan, economic growth is expected to accelerate to more than five percent this and the next year if the country’s fiscal deficits are well managed and external stability is maintained. Efforts to reverse the trade and fiscal imbalances and continued implementation of reforms will be needed for sustaining and accelerated growth and improving welfare.” The Bank report further notes that acceleration of exports, relative decrease in imports and stable inflow of remittances will help to manage macroeconomic risks.

The interesting aspect of the current debate on economy is its linkage with politics both in overt and covert manners. For example, the op-ed writers penning down their commentary in the reputed Pakistani press some weeks ago were calling overwhelming increases in imports supported by an overvalued exchange rate as ‘Daronomics’ while critiquing PML-N’s economic management. The same writers have now started to trace back origins of such policies to Pakistan’s economic management in its formative years in the post-Korean war era when a similar sort of overvalued exchange rate was maintained. They have also linked import-led consumption patterns of the PML-N government’s economic thinking to military government led economic management by Shaukat Aziz in the 2003-08 period. In other words, the scope of discourse has widened.

There is a dire need to look into ways to revive the exports sector. Decline in exports and other macroeconomic risks can be explained by structural factors and Pakistan is following a path-dependent trajectory of rolling over through external inflows rather than setting its house in order

The PML-N government’s defence of the high current account deficit and increasing trade imbalance is built around an inflow of machinery due to CPEC. There are two sides to this aspect; commentary on trade deficit suggests that even non-machinery imports have increased to a large extent, given the widely growing trade imbalance particularly between Pakistan and China suggests that economic agreements between the two might not been worked out to safeguard Pakistan’s economic interests in the best possible manner. All state institutions might be responsible for it and not only the PML-N government as Pakistan’s relationship with China is wide-ranging, covering the security, infrastructure, communication and other aspects of an economic and diplomatic relationship.

There is also a dire need to look into revival of exports. Decline in exports and other macroeconomic risks could be explained due to structural factors and Pakistan is following a path-dependent trajectory of rolling over through external inflows rather than setting its house in order. The cost of doing business and production in Pakistan is higher compared to other countries in the region. Pakistan’s manufacturers have also become used to continuing their business without continuing to improve innovation, quality control and meeting other stringent requirements of being competitive internationally.

If there are any hints that the PML-N government has consciously revolved its economic management around import-led consumption and overvalued exchange rates to please the electorate and win the elections, there might be element of truth to it as well. Some of it is obviously self-serving and most of it revolves around constant uncertainty and political instability that political governments have to deal with, as discussed in these pages earlier.

If political governments have to fend for themselves in an insecure environment of dharnas (sit-ins) and other judicial crises, they are going to hedge their bets through short-term gain in a likely self-serving manner rather than carrying out structural reforms. With the current political instability and elections round the corner in 2018, the likelihood that difficult decisions on economy would be made is even smaller. That is those decisions which aren’t simply based on ‘managing’ the economy from a short-term perspective. For structural reforms to take place in the economy, the structural balance of power between state institutions has to change to allow political stability for democratically elected governments. Pakistan needs this change to plan long-term for its economic, political and social sustainability.

The writer has a social science background and can be reached on twitter @FoqiaKhan

Published in Daily Times, October 18^th 2017.