Going by public perception things are not moving in the right direction and status quo policies are deeply entrenched in the political economy. That is one aspect of the big picture.

However, voices that are calling for a paradigm shift in government and business policies and strategies are getting much louder, signalling the need for a culture change in the way politics, economics and society are organised. This view is also shared by certain policymakers.

It is against this backdrop that the recent remarks about the economic model of acting Governor of State Bank of Pakistan Dr Murtaza Syed assume significance.

He says “Pakistan needs sustained growth to finally begin punching its weight and realise its vast potential. Our present growth model is not fit for this purpose.”

Globally, voices are calling for a paradigm shift in government and business policies, signalling the need for a cultural change in politics, economics and society

In an article on ‘Sheltering from a Perfect Storm,’ he wrote that “the privileged among us need to bear most of the burden while protecting the more vulnerable through targeted transfers. This is the social bargain we need to uphold to prevent social tension.”

What is apparent from the current march of events is that movers and shakers of the economy are losing their grip over fast-changing realities by pursuing traditional approaches.

The growth strategy pursued for decades tends to create more problems than it solves with the fundamentals of the economy turning more and more fragile. Even a moderately high growth rate for a brief spell leads to unsustainable macroeconomic imbalances. And the policymakers are forced to take measures to curb the growth rate.

The problem of economic growth is becoming more complex and complicated when seen in the context of public goods it is expected to deliver.

Economists say the growth rate should range between 7-8 per cent per annum on a sustained basis to absorb the surging number of jobless. In 2022-23, economic growth is expected in the range of 3.5-4pc — half the needed level.

On the cost of living issue, Dr Hafiz Pasha says there has been an increase of 56pc in prices during the last four years whereas the earnings of the low-income group are estimated to have increased barely by 20 to 22pc whereas Pakistan does not have any income redistribution policy.

Prices of commonly used consumer items increased 21.3 per cent in June from a year ago mainly because of costly imported fuel and food items.

The poor facing a cost of living crisis will be further hit by the reducing job opportunities as the economy slows down. Growth with price stability has become a major problem. An increase in production does not bring price stability.

There is a need for a rethinking of business strategies to have a human and social lens too, says an analyst.

A well-known expert in financial services, Nasim Beg estimates that the government is giving away for free something between Rs2-4 trillion a year in subsidies to banks and other similar institutions. He suggests that this money could be reallocated to social and economic development that will bring long-term gains to the country.

Emerging markets and developing countries are now mulling different approaches to avoid boom and bust cycles which Pakistan may look at in evolving its own home-grown economic model. “The sustainability of our economic growth depends on our success in empowering the majority of our population to participate in the economy,” says South African President Cyril Ramaphosa.

And Chile has prepared a draft constitution which lays down that everyone has the ‘right to work’ and that ‘all forms of job insecurity are prohibited.’ How this will work out and how long it would take to implement this agenda is difficult to predict. Critics say it would not fit any business model. Yet it shows the direction in which Chile wants to move. The approval of the draft constitution will be sought from a referendum in September.

In the US the issue as to which is worse — inflation or unemployment — has cropped up following fears of a possible recession because of a sharp hike in interest rates by the US Federal Reserve.

Yes, a recession is worse than inflation, says Claudia Sahm, a former Federal Reserve economist. She was referring to a debate among economists, which, supported by surveys on the responses of common citizens towards both the problems they face, reaches the conclusion: “Inflation is pretty bad, but unemployment is far worse.”

Former Finance Ministry Advisor Dr Ashfaq Khan says the free–fall of the rupee is taking the economy towards greater vulnerability.

The slide in rupee value is now attributed to political uncertainty and the strengthening of the dollar despite the fact that US inflation is at a 40-year high.

Stable interest and exchange rates are required to push investment, output, exports and import substitution while maximising the use of national resources and talents. Pakistan’s economic growth including its efforts to shore up its external sector will be adversely affected by the emerging international market environment.

In its latest World Economic Outlook (WEO) released on July 26, the International Monetary Fund has cut its global GDP growth rate estimate for this year to 3.2pc which is about half the rate forecasted last year.

“Risks to the outlook are overwhelming tilted to the downside,” and if they materialise, the WEO warns, it could push the global economy into one of the worst slumps in the past half-century. Not ruling out stagflation, the WEO said, it could reduce growth to 2pc in 2023.

Looking at the developing global economic landscape, Pinelopi Koujianou Goldberg, a former chief economist of the World Bank Group believes that interest rate hikes by major central banks will not curb inflation and that a more comprehensive policy response is needed to rein in rising prices.

It may be recalled that the then emerging widely accepted idea — a people-centred development — in the 1970s was substituted by West-led financialisation of the global economy to tackle stagflation which seems to be returning.

Things are also getting worse in Pakistan because of political uncertainty and instability. Power politics is in full bloom with guiding cardinal principles of the 1973 Constitution only partially observed. And economic growth is not sustainable in the absence of a people-centred economic development with the required focus on self-reliance.

Published in Dawn, The Business and Finance Weekly, August 1st, 2022

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