Growth risks may recur

Published January 3, 2022

SHAKING off last year’s haunting images of human misery around them, Pakistanis remained true to their elements and refused to surrender to despair.

Be they images of makeshift crematoriums in India at the height of Covid outbreak in June, or those of Afghans, desperate to leave the country after the Taliban takeover, falling to death on the tarmac of Kabul airport from exiting US planes in August, Pakistanis continued their fight to beat the odds. It is some audacity on their part to not just live on but to expect better fortunes this year. In what happens to be a pre-election year, the spotlight will certainly be on the economy, and that can only mean some relief, they believe.

The opposition, as could only be expected, feels 2022 will be all doom and gloom if the ‘hybrid regime’ is not sent packing. They argue that the ruling party lacks the insight, capacity and political capital necessary to fix the economy. “The PTI lost whatever goodwill it had among the key economic drivers. Now they are not even confident enough to move decisively,” a top leader of PPP commented off the record.

Indeed, the past two years were crushing for most Pakistani families as they braved double-digit food inflation as well as multiple upward revisions in utilities and fuel rates, but probably they still feel lucky enough to be alive and, while they are still alive, there is no harm in waiting for the PTI to make good on its promises. If the PTI economic team somehow succeeds in taming inflation, improving income/job prospects and ensuring steady gas supply in their homes, they might excuse its follies and may opt to thank the party at the ballot when the time comes next year.

Opposition leader and former commerce minister Khurram Dastgir Khan was confused at the lack of public outrage despite what he called “a collapse of the economy” that has trampled the working masses. He highlighted the government’s under-performance in commodity, energy and fertiliser sectors. He also hammered the issue of income disparity that has deepened over the past three years.

In this special report the Dawn B&F team picks the minds of stakeholders to take a look into the future

“My constituents complain, but they are reluctant to come out on the street against the government. Probably the opposition has so far not succeeded in articulating their sentiments well enough to inspire confidence for a viable change. Or they perceive all efforts to dislodge the government futile as long as the deeper establishment supports the setup. It could also be that they just want to wait it out and turn the tables in the next elections,” he said while indulging in a bit of loud thinking during his chat with Dawn.

With time running out, the PTI government will have to deliver better on the economy. To this end, it needs to boost investment, revitalise the China-Pakistan Economic Corridor (CPEC), revive the small and medium sectors, encourage exports, suppress imports, expand the job market, ensure fair-pay structures in the private sector, keep utility rates in the reasonable range, ensure steady affordable supply of inputs to farmers, and stabilise the currency. Easier said than done, right?

The ‘to do’ list, which is more like a wish-list, is long and will be hard to execute even for the best of the best. For the weak PTI economic team, that has itself undergone major changes more than a few times in the past three years, it will be tougher, more so if the International Monetary Fund (IMF) does get back on board with the $6 billion Extended Fund Facility.

It is unlikely that the risk-averse private sector will start fresh investment in an environment that is not particularly friendly, with policy rates rising and the government scaling back tax breaks, amnesty and concessions. As far as public investment goes, the government is already, reportedly, considering chopping off one-fourth (Rs250bn) of the Rs900bn public-sector development programme for the current fiscal year to ease the fiscal crunch that the IMF is said to have flagged.

In the current disruptive times, China seems to be on the edge with a very limited appetite for mistakes by even strategic partners. For the first time in recent history, the Chinese leadership had publicly expressed displeasure over the handling of CPEC affairs in Pakistan. China was said to be uncomfortable with the security arrangements at CPEC project sites and Pakistan’s desire to renegotiate sealed deals. The appointment of the technically strong advisor (Khalid Mansoor) has not proven to be sufficient to get the CPEC ball rolling again. The chances of a breakthrough may be slim, but if the PTI team controls CPEC detractors in its ranks and decides to remove irritants quickly, the Chinese investment may start flowing in again.

The Covid-induced lockdown last year battered the small and medium enterprises (SMEs) harder than generally assumed. Relevant indicators suggest that it disrupted the whole ecosystem of the huge informal economy. Many labour-intensive small businesses that had closed down during the lockdown (March-May 2020) could never make it back. Probably this explains why 3.9pc growth last fiscal year felt like a recession. The government is making an effort to pull up SMEs by encouraging bank lending, but perhaps more direct intervention is required to build back small businesses.

There are limits posed to exports by the availability of exportable surpluses. There was some improvement as Abdul Razzak Dawood, the advisor on commerce, actively engaged with the business community. A leap, however, is not possible till the base of the manufacturing and service sector expands and productivity gets a boost.

The PTI government did try to keep the import bill in check by scaling up duties of non-essential items in an attempt to suppress market demand, but the policy had limited success, with the government attributing subsequent hike in the import bill to oil price hike and higher demand for raw material and machinery.

The government missed the chance to discipline the private sector to improve the workers’ density and pay structure when it doled out public money unconditionally to revive their operations after the pandemic shock. There is a slim chance of the business class voluntarily prioritising job creation or workers’ care packages. There is very little scope of jobs in the public sector as all tiers of government and public sector commercial entities are generally over-staffed. The government has pinned its hope on the labour-intensive construction sector for employment generation. Despite a generous stimulus package, the results so far have not been impressive as unemployment numbers continue to swell. A study by the Pakistan Institute of Development Economic has projected 16pc general unemployment rate and 24pc among degree-holders. These are grim numbers. Apparently, the government is just as resilient as the people of Pakistan. Both are continuing their respective fights to beat the odds.

Published in Dawn, The Business and Finance Weekly, January 3rd, 2022

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