The country’s grim economic prospects arguably deserve urgent attention. So, the recent criticism of the government’s economic performance is welcome. Blaming past governments for economic mismanagement, although true, means little.
The current government must remember its primary writ is to revive the economy. The government must quickly find a replacement for Finance Minister Umar, who resigned this week, as the financial challenge isn’t going away.
Faced with mounting economic challenges, past governments, and economic managers became adept at playing modern alchemists, who invented something out of nothing and parlayed non-existent achievements. We hope that this government avoids that route.
The poor financial outlook is hard to ignore. Projected double-digit inflation, rupee free fall, Debt-to-GDP ratio climbing to 72.7pc and a static growth rate of 2.5% in the medium term leaves little reason for optimism. It seems the way forward is to confront the status quo which is leading to disaster.
The prescribed economic medicine is to cut spending, raise revenues, reduce deficits, encourage investment and spur growth. The initial goal is to stabilise public finances and be able to respond to economic or political shocks.
But where to start on economic reforms when all past attempts haven’t worked. The economic story is about unsustainable government finances, stagnating growth, the steadily deteriorating standard of living and high inflation for most, widening fiscal and trade deficits, and the free fall of the rupee.
Piling on more debt to finance old debt and interest, living off aid flows and grants, using up 13 unfinished IMF structural programs, export subsidies, and tax amnesty schemes haven’t stopped the rot. Expecting loan write-offs and the return of ill-gotten billions allegedly stashed abroad hasn’t materialised. The problem goes deeper. Recognising this is a start.
For the people, living on the recent national euphoria by standing up to India is definitely more palatable. It is better than thinking about the prospects of rising inflation, unemployment, and debt. But this also hampers the perpetual begging bowl – a ticking time bomb – from getting the attention it deserves.
In spite of the challenges, the country has to regain lost ground by inviting foreign investment, forging new trading relationships and investing in value-added exports. Economic policies must back this based on market-based principles and rules that yield real economic growth and productivity
In Pakistan, the concentration on military prowess, in the most part, overshadows all else. Military ‘accomplishments’ similar to sporting feats, though fleeting and short-lived, raise the national spirit. Still, gladiator games couldn’t save the tottering Roman Empire. Thus at some stage, a sobering dose of reality needs to kick in to refocus on the real priorities.
Learning to live within one’s means, restoring a semblance of economic sovereignty and ending the boom and bust cycle won’t be easy. The government has raised $9.2 billion from China, Saudi Arabia, and the United Arab Emirates to bolster declining foreign exchange reserves and to negotiate a better deal with the IMF.
We await the much-touted IMF package of around $8 billion (better deal or not). It will come with terms which will stifle economic growth for 2-3 years. The recent hikes in the cost of utilities and imports are a preamble to the IMF stabilisation programme. Despite the risks, the country has little choice but to complete the IMF programme.
The next step is to revive investment and trade. This will be tough going as the country’s credibility with the international financial community is depleted. While Pakistan was indulging in grandiose regional games which earned it more enemies than friends, other regional competitors were investing in infrastructure, industry, and innovation essential for a successful trading strategy. Moreover, potential investors are interested in a secure and transparent environment.
In spite of the challenges, the country has to regain lost ground by inviting foreign investment, forging new trading relationships and investing in value-added exports. Economic policies must back this based on market-based principles and rules that yield real economic growth and productivity.
The government could heed advice from noted economist Alan Greenspan on its forceful stand on corruption: “Corruption, embezzlement, fraud, these are all characteristics which exist everywhere. It is regrettably the way human nature functions, whether we like it or not. What successful economies do is keep it to a minimum. No one has ever eliminated any of that stuff.”
It is highly improbable if not impossible for the Pakistani economy to improve without touching the “sacred cows” of military spending and subsidies. Otherwise, the low rates of growth will compound the steadily deteriorating standard of living, which coupled with the vagaries of nature like floods and earthquakes create a vicious cycle that spins faster and faster out of control.
This is no time for complacency but for hard decisions on reducing defence spending, wasteful non-defence expenditures and raising tax revenues in a manner that jump-starts the economy. These are not just things that the country should do; they are things past due, politically risky as they may be.
They are still a far cry from any fanciful plans to grow the economy bringing demonstrable benefits to citizens through job growth, capital formation, and poverty alleviation, trends seen in more buoyant and stable economies.
The writer is a freelance contributor