Daily Times

A begging bowl in hand does invite contempt. Razak Dawood, the Prime Minister’s Advisor on Commerce, candidly admitted that begging from Saudi Arabia was an awful experience. Dawood was part of the delegation that went on a futile trip to Saudi Arabia to seek help for Pakistan’s ailing economy.

Pakistan, quite rightly, can’t expect a reward for its economic failures. The basic fact is that a country that can’t manage its economy, and is at the mercy of needs aid, loans, and bail-outs from abroad, has low credibility.

As a consequence, Pakistan has difficulty in attracting foreign investment. Potential investors tend to shy away when they hear the recurring message that the economy is unstable.

Seeking relief from the International Monetary Fund (IMF) is a hard sell for any government. The IMF will demand that the government undertake difficult structural reforms to revive the economy. Even if the country avoids the IMF by leaning on friendly countries, it needs to learn hard lessons from the past to put the economy on the path to a sustainable recovery.

First, Pakistan should fully avail the IMF financing package, if available, to its completion. The country has finished only IMF programme (of 21), that too with waivers on circular debt and privatisation. The country doesn’t have the financial flexibility to solve the economic problems on its own. The IMF stabilization programme is a bitter pill to swallow. It brings currency devaluation, hikes in the price of utilities and a rise in interest rates into play.

Moreover, when the economy is tanking at this alarming rate, pie in the sky homegrown solutions and short-term fixes won’t work. Recovering stolen wealth and crowd-funding are just distant mirages.

The IMF may impose strict upfront conditions, prior to the disbursement of new loans, like a free-floating currency and the removal of subsidies. The public will find the inflationary effects of these tough measures hard to bear. This may well turn out to be politically risky for the government.

Despite the downside, it is important for the government to stay the course with the IMF. The opposition, in the national interest, would do well to assist the government in this endeavour.

Unlike in the past, due to a low point in the bilateral relationship, Pakistan can’t count on the US influence with the IMF either. Previously, Washington provided Pakistan some wriggle room through debt relief and direct aid. As ties with the US have deteriorated, Pakistan is increasingly reliant on China for foreign investments and economic support.

Second, the government must stop experimenting with the economy. There is a need to implement sound socioeconomic policies taking in the long-view.

The credit-led consumer model gave rise to the middle-class bubble in the Musharraf period. The “crony capitalism” practiced by Nawaz Sharif enriched a few and continued the boom and bust cycle. Now, Imran Khan is advocating a hazy Islamic welfare model, without proving any details

Since the 1960s, Pakistan has tried the entire spectrum of economic policies. The Harvard ‘trickle down’ free-market approach during Ayub Khan’s rule led to income disparities. The socialist state-controlled model under ZA Bhutto caused a flight of capital and created loss-making state-owned enterprises.

More recently, the credit-led consumer model gave rise to the middle-class bubble in the Musharraf period. The “crony capitalism” practiced by Nawaz Sharif enriched a few and continued the boom and bust cycle. Now, Imran Khan is advocating a hazy Islamic welfare model, without proving any details.

A consistent historical pattern though, is the heavy reliance on foreign aid and loans to spur growth. Pakistan’s total stock of outstanding debt and liabilities stood at 79 percent of GDP on June 30, 2017. Another trend is the steady rise in defence spending (including a whopping 34 percent increase since 2008).

Third, the PTI government should ensure full transparency on the economy, starting with the terms of the Chinese loans, used to fund the China-Pakistan Economic Corridor (CPEC). In addition to transparency, ensuring good governance and providing a strong regulatory framework is essential for a modern economy.

Fourth, it is very damaging to politicise the economy. Building sound fundamentals are the cornerstone of economic success. The political leadership must agree on policies that not only help the country out of the present slump, but also benefit it in the long-term.

The issue is that every new government in Pakistan seems to inherit an economic mess. The Pakistan Tehreek-e-Insaf (PTI) government is no different in this regard. Nevertheless, blaming past governments for current economic ills is the easy way out. Furthermore, it is naïve to expect a quick turnaround of the economy within a self-imposed 100-day deadline.

Finally, the initial challenge is to stabilize public finances. The next step is to jump-start the economy, revive trade and investment, create jobs and encourage self-reliance and improve domestic savings.

But, for economic reforms to have any meaningful impact, the pro-rich orientation needs to alter to a more equitable method. As long as the rich control the levers of power, they will impose economic policies on the rest to benefit themselves.

The consequences of these policies are self-evident; few, of the benefits of periodic growth spurts and the huge infusion of foreign aid have; trickled down to the majority of poor citizens.

If this selfish approach doesn’t change, Pakistan may end up permanently polishing the begging bowl.

The writer is a freelance contributor. He can be reached at shgcci@gmail.com

Published in Daily Times, October 19^th 2018.