“The downside risk to the nascent economic recovery from the impact of the second wave of Covid-19 at home and in the countries of major trading partners are becoming prominent,” says a Nov 27 monthly update issued by the Ministry of Finance.

Owing to the partial lockdown of economic activities, the premier’s special assistant on revenue, Dr Waqar Masood Khan, said a little later that “the economy was slowing down”.

An early initial recovery was attributed to fiscal and monetary support extended to firms and households affected by pandemic, as well as the economic rebound from the low base of -04pc GDP growth in the last fiscal year.

The wide-ranging reliefs including the Rozgar financing scheme and a renewed official focus on the development of labour-intensive industries did somewhat slow down the pace of rising unemployment and poverty but these were still much short the people’s needs.

However, official efforts in this direction are underway. Talking to a delegation of leading industrialists on Nov 27, Prime Minister Imran Khan said their proposals were being incorporated by the government into decision-making as the country’s prosperity was linked with the country’s industrial development.

Pakistan needs to find more fiscal space to face tough challenges ahead

The government is also trying to address the issue of household insecurity. In late November, the prime minister launched the first phase of payments to 4.3 million women beneficiaries of the Ehsaas Kifaalat Programme. In this phase, six-month payments at the rate of Rs12,000 per beneficiary per month is proposed to be now cleared for July-December 2020. Though no official announcement was made, a news report quoting official sources said a sum of Rs51.24 billion has been released for this purpose.

The number of beneficiaries will be increased to 7m women and payments to the additional beneficiaries will be

made December onwards. The process is scheduled to be completed in the current financial year.

Simultaneously, the State Bank of Pakistan (SBP) launched a portal to monitor the turnaround time for loan applications for small and medium enterprises (SMEs). In December 2017, the SBP had prescribed the turnaround time of 15 working days for small and 25 working days for medium-sized enterprises. Banks are required to report the cases of recently initiated new SME loans.

An early initial recovery was attributed to fiscal and monetary incentives as well as the economic rebound from the low base of growth in the last fiscal year

The actual amount disbursed and utilised under fiscal and monetary packages is not officially announced except in some rare cases. For example, to quote an analyst, the SBP has not so far shared details of disbursement of “approved loans”. That includes Rs238bn proposed to be lent to businesses to pay wages and protect workers from layoffs.

The policies and official pronouncements of the PTI government do not give a clear message to many people as to how things will take shape and whether the economy is moving in the right direction.

One such example is the recent assertion by the prime minister that Pakistan of 2020 was “all about creating wealth” through industrialisation, and “the wealth generated will be used to lift the people out of poverty”. Critics see it as a policy statement, indicating a return to a rejected trickle-down approach in steering economic growth. In fact, the trickle-down effect was never a part of any serious economic theory and its ineffectiveness was fully exposed by rising inequality among and within nations in recent decades.

Pakistan’s own experience during “industrial revolution” of the 1960s shows that inclusive and sustainable socio-economic development is not possible with a trickle-down approach. After all, the public perception of that development decade was that it had widened the disparity in income and assets among the country’s regions and households and concentrated wealth in a few hands. And it led to Bhutto’s brand of Islamic socialism which Mr Khan denounced in his speech at the World Economic Forum.

Nobel laureate Joseph Stiglitz recommends trickle-up economics, which makes more money available to the poor and sends benefits to the rich as well. When the top 20pc get richer, GDP growth declines in the medium-term, but GDP actually grows when the bottom 20pc get richer, say top IMF experts.

No less relevant here are the views of former US Fed Chair Janet Yellen on how to address the economic recession. Ms Yellen never forgot that “economics is about people who aren’t emotionless, hyper-rational calculating machines economists sometimes wish they were,” wrote Nobel laureate Paul Krugman in an article while ‘celebrating’ her nomination by US President-elect Joseph Biden as next secretary of the Treasury. In her work, Ms Yellen also showed that labour market outcomes depend not only on dollar and cent calculations but a lot on perceptions of fairness.

In a 2013 analysis, the Wall Street Journal found that she had been the most accurate forecaster among the US Fed policymakers.

As a serious researcher and one of the leading figures in the intellectual movement, Mr Krugman says: she helped save macroeconomics as a useful discipline when its usefulness was under internal and external assault. Right-wing politicians had turned away from reality-based economics in favour of crank doctrines such as miraculous growth is possible by cutting taxes on the rich. A significant number of economists rejected the role of any official policy in fighting the recession assuming that people act rationally in their own interest.

Pakistan needs to find more fiscal space to face tough challenges ahead. The fiscal deficit has shot up by 70pc as of Nov 20 from a year ago. While the current expenditure is rising, the actual development spending remains very low.

Surging foreign debt servicing and rising expenditure can be reduced by a more realistic monetary policy. As was the past practice, the SBP’s policy rate should be linked to core inflation and the market value of the rupee should be close to its Real Effective Exchange Rate (Reer). Currently, the interest rate is a bit higher than core inflation and the rupee is under-valued when measured against Reer.

If the economy is about people, there is a strong need to democratise the political economy in a way that both the responsibility and fruits of the country’s economic development are equitably shared by all segments of the population.

Published in Dawn, The Business and Finance Weekly, December 7th, 2020