The Pakistan Tehreek-i-Insaf was voted into power eight months ago. Its leaders declared right away that the economy was in a bad shape. To set it right, they started by forming several task forces and councils. This proved akin to solving a jigswa puzzle piecemeal. In the end, the task forces appeared to have concluded that too many things were wrong for them to suggest simple solutions. The government has been forced thus, to borrow a cricketing idiom, to change its batting order. Some of the players are seen being sent back to the pavilion.
Before going into what led to the current situation, it is important to point out that some of the challenges the government faces are indeed on account of problems it has inherited from its predecessors. This is the way it always is. All governments inherit problems like deficits, debts, inadequate tax systems and institutional weaknesses.
Governments deal with these and other challenges by making plans. They work with their economic managers to sort things out on priority and deal with the challenges and uncertainties. For this purpose, they sometimes knock at the doors of international agencies. Sometimes they try to manage things through internal policy measures. In the past, the governments have been able to control the ghost.
When the PTI-led government came into power after the 2018 elections, they tried to sort things out and bell the ghost but this proved difficult. This is how:
First, many task forces and councils were formed. This complicated the work unnecessarily. It was like asking too many cooks to cook a broth. Predictably, they failed to do a satisfactory job. More specifically, this hindreed the recruitment of economic managers and decisions like approaching the IMF.
Second, dealing with the twin deficits (financial and trade) became another challenge. The fuel and utility prices were raised without prior planning. Then instead of allowing the currency to find its new value, there were serious nosediving episodes. The added uncertainty raised the costs for the businesses and potential investors. It was argued that the irregular decline in the value of currency was necessary to boost exports but the interest rates were raised at the same time so that there was no significant gain for manufacture-to-export.
Before going into what led to the current situation, it is important to point out that some of the challenges the government faces are indeed on account of problems it has inherited from its predecessors. This is the way it always is. All governments inherit problems like deficits, debts, inadequate tax systems and institutional weaknesses
Third, tax recovery targets were missed despite the heavy dependence on indirect taxes. As the cost of using utilities increased without a change in incomes, the disposable incomes were reduced and thus consumption patterns got disturbed.
Fourth, there was no significant planning to run the state owned enterprises. The only change visible was some faces lobbying for more incentives and perks.
Fifth, the cost of loans obtained from various countries and international agencies is a long-term agenda for the government to deal with. All borrowing will have some transmission mechanism into the system thus hindering the growth of the economy and adding to the pressure on taxpayers.
This also leads to the trust deficit i.e. business community and investors have no significant trust in the system. To deal with these challenges and to free the economy, the government must first put its house in order. It needs to simplify things by reducing the number of cooks and have a more integrated approach.
Second, at eight months old, it is not too late for the government to come up with a reforms programme to plug the gaps identified in the current policy frameworks.
Third, to allow the economy to grow and be competitive, the government needs a break from the long history of protectionism.
For now the economy is on a rocky road and it is in a saddle. Shedding the protectionism can free it and a long-term agenda can give it direction.
The writer is a research associate at the Sustainable Development Policy Institute