A major reset is required

Published March 12, 2021
The writer is a former member of the prime minister’s economic advisory council, and heads a macroeconomic consultancy based in Islamabad.
The writer is a former member of the prime minister’s economic advisory council, and heads a macroeconomic consultancy based in Islamabad.

THE government has suffered a significant setback in the recent Senate elections with one of its candidates, the incumbent finance minister, failing to win a seat. While the opposition’s vote-buying and horse-trading shenanigans were brazen and open, the fact remains that in unconstrained voting, free from the straitjacket of party position and discipline, many PTI legislators would have gone ahead and cast a vote of no-confidence in the finance minister and his policies. Both the finance minister and his policies are unpopular and viewed with suspicion for a number of reasons.

First is Mr Sheikh’s history. He is viewed as being parachuted into the cabinet from Washington, D.C. (or Dubai), with little or no real stakes in Pakistan. At the end of each of his tenures under president Musharraf as well as the PPP, he picked up his bags and left at the end of his term. Unlike his countrymen, he did not face or live through the consequences of policy decisions taken by him as a minister.

Related to this is the fact that he is an unelected technocrat. As such, he is completely aloof and disconnected from the travails of elected PTI colleagues who have to face angry constituents — whose wrath is stoked by Mr Sheikh’s policies. Then there is the matter of Mr Sheikh’s predisposition to ‘sleight of hand’. In his current tenure, he has made considerable noise about, and earned the prime minister’s plaudits for, budgetary allocation for the government’s Covid response and economic stimulus — without being as open about the actual spending that he has allowed (some 66 per cent of the amount allocated has reportedly remained unutilised).

Perhaps most importantly, the incumbent finance minister appears completely bereft of ideas on the economy, other than dutifully following the strictures of the IMF programme.

The government should seize the day, not merely save it.

It would be tempting to jump to the conclusion that all is lost for the government in terms of much-needed course correction in its policies, after its failure to win a majority in the Senate. While the government’s legislative agenda has certainly suffered a setback, there is still considerable space for improvement in government performance in key areas that do not require legislation. The following important areas require a reset and urgent course correction by the government.

Punjab: From growing piles of uncollected garbage, to reports of rampant nepotism, corruption, maladministration and misgovernance, the paralysis in Pakistan’s largest province is glaringly obvious, and a source of alarm and extreme discomfort even for many PTI legislators. Punjab is the key to winning a general election and forming the government at the centre, and the optics of a dysfunctional, clueless provincial government has political ramifications at the national level. Unfortunately, this remains a blind spot for the prime minister who has anointed a non-performing ‘Mansur Akhtar’ to the top slot and continues to see him as a ‘Wasim Akram plus plus’.

Read: ‘Alarming slowdown’ in Punjab economic recovery

The misgovernance in Punjab is providing much of the wind in the sails of the opposition — and is leading to a situation where a significant number of PTI ‘electables’ appear to be preparing to defect to the PML-N at the time of the next general election.

A clear pathway to economic growth: A flawed appreciation of the economic situation has become the prime minister’s second big blind spot after Punjab. The finance minister has failed in providing a comprehensive roadmap for a transition from stabilisation to growth. In the absence of a growth framework, the economy is flying on autopilot with the finance minister hoping that growth will automatically follow stabilisation.

Perhaps more detrimentally, both the finance minister and the State Bank governor have played up the short-run pick-up in economic activity as evidence of a sustained ‘take-off’. This is disingenuous and completely off the mark, as we have witnessed multiple times in past episodes of stabilisation following an IMF programme. Not for the first time in our recent history, Pakistani technocrats from the IFIs brought into these positions have self-servingly sold nascent improvement in economic indicators which accompany macroeconomic stabilisation, as the ‘real deal’.

Regional development: Apart from a national growth framework, the government also needs to roll out specific regional development plans for Gilgit-Baltistan, Balochistan, ex-Fata and South Punjab. These plans should be dovetailed into an overarching national growth framework. For Gilgit-Baltistan and Balochistan, better leveraging and integration of CPEC projects provides a lynchpin for development. Here too, unfortunately, no movement from the government side is to be seen.

Controlling inflation: An inability to control food inflation has been the government’s Achilles heel over the past two years. Unfortunately, the outlook for inflation is very unfavourable. With the international oil price touching $70 per barrel, and global prices of a range of commodities from industrial to agricultural touching bullish peaks due to a combination of supply disruptions and a return of demand, it is only a matter of time before Pakistan feels the heat.

Politically, the government will either need to subsidise petrol, electricity and food, or ramp up growth so that plentiful employment opportunities and rising wages blunt the impact. Instead, it has introduced an amendment to the SBP Act and bound the central bank to an inflation-targeting objective. An inflation-targeting framework is completely misplaced and out of context for Pakistan, as I will attempt to explain in a subsequent column. The clear and present danger is that its premature adoption threatens to permanently suppress economic growth.

FBR reforms: While broader SOE reforms may now be out of reach for a government with a diminished political standing, one area where it can still press ahead with reform without expending its depleted political capital is a meaningful and credible restructuring of the Federal Board of Revenue. The government’s team is involved in tinkering around the edges which is unlikely to change the status quo. A proper restructuring of the FBR along modern lines will have a significant long-term pay-off for the economy.

In short, the recent political setback for the government is an opportunity to reset some of its policies.

The writer is a former member of the prime minister’s economic advisory council, and heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, March 12th, 2021

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