The economy did not fare well in 2018. Acceleration halted and the economic challenges were aggravated in the second half. The PTI government’s negotiated bilateral inflows averted a sovereign default and offered space for manoeuvrability to fix disruptive factors. People hope that the new leadership will be able to revive waning business confidence and minimise the pain of stabilisation for the working masses. The PTI vision will come into full play in the year ahead. It is high time to identify the

In this special report, the Dawn Business and Finance picks the minds of movers and shakers to spot potential drivers and project trends in key economic indicators

THE Pakistani economy is on course for a drastic slowdown unless the behaviour of the business community changes and the PTI economic dream team grasps the value of prioritising and sequencing reforms instead of trying to fix everything at the same time.

It is apt to identify the missteps that changed the future perception from highly optimistic at the start of 2018 to moderately doubtful by its close. It will, however, be more relevant at this juncture to pinpoint factors that can influence the economic course going forward.

The blind trust in democracy to make necessary corrections in the economic framework is perhaps an oversimplification bordering absurdity. The third consecutive peaceful transfer of power did stabilise the democratic order. The disruption of democratic transition, however, entailed a high economic cost. The reality is perhaps a lot more complex and needs to be assessed objectively without ideological blinkers to make adjustments for the system to better deliver for the majority.

As 2018 comes to a close, all global economic forecasters have revised down the expected economic performance of the country citing shrinking foreign exchange reserves and a high debt burden among other factors. The World Bank, International Monetary Fund (IMF) and the Asian Development Bank have brought down the GDP growth forecast by two to three per cent. Reputable credit rating agencies Moody’s and Fitch Ratings have downgraded Pakistan to the lower end of the highly speculative grade.

In its current review the IMF stated: “Macroeconomic stability gains have been eroding, putting the outlook at risk. Growth is expected to moderate to 4pc in 2019, and slow to about 3pc in the medium-term”. It projected a slight rise in the unemployment ratio. The current account balance is forecast at negative 5.3pc for 2019 compared to negative 4.1pc for 2017 and negative 5.9pc in 2018.

With panic gripping Pakistan’s markets, the situation has digressed to a point where no government, even with the best of intentions, can shield households perfectly on its own from the fallout of the stabilisation policies.

It might be wishful thinking, but the challenges the country is facing in the current political environment demand political and economic players absorb the gravity of the situation and evolve a short-term consensus regarding a minimum economic agenda to ensure political stability in the tough phase ahead. The bottom line, however, is that only significant fresh doses of investment can ease the economic pain going forward.

The challenges the country is facing demand key political and economic players absorb the gravity of the situation and evolve a short-term consensus regarding a minimum economic agenda to ensure political stability in the tough phase ahead

The issues relating to transparency and terms of multiple deals under the CPEC are important. But the benefits of massive investment in costly infrastructure projects under this umbrella must be understood and appreciated by all stakeholders. Taking Chinese economic support for granted would be an unforgiveable mistake in both economic and political terms and can upset the apple cart. There is a dire need to revive and revitalise lagging projects under the CPEC immediately.

It will also be important for stability to understand how the PTI hierarchy views the 18th Amendment to the constitution and the landmark seventh National Finance Commission Award. Any attempt on the part of the government to tinker with the agreed financial devolution formula is expected to face stiff resistance by all provincial governments.

Again there is a need to understand and appreciate the role of the informal economy and the resilience it lends when the going gets tough for the formal sectors. Yes, there is a need for deeper insight, but unplanned disruptions can acerbate the downward spiral and add to the misery of millions who make their livelihood under the radar.

The deficit-riddled government will not be in a position to close the investment gap. The responsibility, therefore, rests squarely with the private sector to rise up to the occasion. Without local investor mobilisation expecting foreign direct investment is unrealistic. Fast tracking the CPEC industrial economic zones can get the ball rolling.

Will the current crop of economic ministers be able to allay the investors’ fears and offer a friendly business environment without giving-in to their tantrums is yet to be seen? Some issues being raised by the corporate sector regarding unjust taxation burden and lack of continuity in policies make perfect sense and deserve urgent attention.

An adjustment in a policy framework that discriminates against industry in favour of trade is also long overdue. The demand for promotion of regional trade is intertwined with the country’s diplomatic and security policies, particularly normalisation of ties with India, and may take longer than stakeholders expect.

The PTI government, in the end, did succeed in managing to get critical dollar inflows from friendly nations. The secured breathing space better positioned the country’s economic managers to bargain with the IMF regarding conditions that are perceived to be unduly harsh and politically costly.

Besides mitigating risks to the external sector the dollar injection from China and Saudi Arabia, and promised budgetary support from the UAE, did earn the PTI government some trust in the country.

Yet, the markets are still not comfortable. They want the IMF deal because the programme improves the credibility of the policy evolved to fix the economy and minimise risks in a highly volatile world.

To manage the high public expectation in a challenging economic environment, much will depend on how quickly the PTI can earn the confidence of the private sector to nudge it towards committing capital intelligently while taking a long-term perspective. The asset owning class, with its very narrow focus, has clearly been inclined towards short-term investment avenues to roll its monies.

If the elite of the country, urban businessmen and rural aristocracy that commands a sizeable, capital shows foresight, develops an appetite for risk, shrugs off lethargy and assumes charge for industrialisation, the current economic stress can actually serve to reorient the direction of the economy towards a more stable base.

“Now is the time for the private sector of Pakistan to prove its credentials as an ‘engine of growth’ by committing capital in growth sectors to generate wealth, create jobs and sustain the economy,” commented a market watcher.

“The PTI leadership must also have gotten some sense of the economic currents and counter currents. It enjoys more support amongst the overseas Pakistani community than any other political party in the country. It must now understand that a following on social media does not necessarily translate into material support of the scale expected, so it should start focusing on local economic drivers,” he warned.

“The emphasis on exports is good but the government needs to understand that in the highly competitive word Pakistan has little scope as long exportable surpluses are produced locally,” he added drawing attention to trade.

Unfortunately, household incomes may come under pressure with a slowdown in growth and inflationary squeeze in 2019. It might demand readjustment in household budgets and curtailment of entertainment spending in the middle classes.

For poor the effect of the policy choices of the government will be more substantial as any hike in the prices of essentials will impact family food intake and whatever little they spend on health and education.

Published in Dawn, The Business and Finance Weekly, December 31st, 2018