While fully engaged in firefighting, Finance Minister Miftah Ismail says he wants to break the boom-and-bust cycle that has played out for decades and help the nation finally learn to live within its means.

Achieving even a stable, moderate growth rate is the most challenging, complex job — the over-arching issues facing the policymakers due to persisting imbalances in the development of various sectors of the economy, the enormous disparity in household incomes and social backwardness in less developed regions further complicate a tough task. All of this is the result of policy failures and bad governance.

In a debt-driven economy with the livelihood of millions supported by doles such as the Benazir Income Support Programme, national self-reliance involves a cultural change in every facet of our economic, political and social life. Through an evolutionary process, such a transformational change can be achieved only by the active participation of all citizens, with the movers and shakers of the economy serving as initial catalysts. Self-reliance, a laudable objective, has to be a decades-long process.

The finance minister has also sought national support to end the widening gap between soaring import payments and the combined dollar earnings from exports and the inflow of workers’ remittances. Professionals find it more lucrative to seek jobs abroad and the export of manpower is officially encouraged to earn workers’ remittances to finance the trade deficit. However, low productivity can also be explained by brain drain.

While the finance minister’s aim to break out of the boom-and-bust cycle is laudable, the barriers appear insurmountable

Without increasing productivity significantly in a diversified field of economic activities by mobilising local resources and talents, required export trade surpluses and earnings cannot be achieved, nor can effective import substitution.

On its part, Mr Ismail adds, the government aims to spur economic growth by avoiding unchecked imports of everything from home appliances to cosmetics. At the same time, the finance minister has scaled down his estimate for GDP growth for this year from a targeted 5 per cent to just over 3.5pc, which is close to the International Monetary Fund (IMF) forecast.

The initial official estimate does not rule out the growth rate falling to 2pc as the losses from the ongoing deluge, which is not yet over, have yet to be fully assessed. As a result, unemployment may rise by an additional 3m by June 2023.

In fact there is no space in the long-pursued policy framework for the economy to take the road of self-reliance. Even initial moves are not visible. With macroeconomic imbalances worsening and owing to earlier Pakistan’s deviations from Fund’s programme, the IMF conditions have stiffened despite the global inflation’s adverse impact on the economy and the immense devastations caused by the torrential rains and flash floods.

It would be in the fitness of things that the government should set up an example of financial discipline for the nation to follow. According to the IMF, the total foreign and domestic debt-to-GDP ratio is projected to rise from 77.9pc at the end of 2020-21 to 78.9pc at the end of FY2022. The interest payments have been rising as a percentage of the total budget.

In FY2021-22, interest payable amounted to 36pc of the total budgeted amount and 40pc of the current expenditure. This year’s interest payments will rise to 41.5pc of the total budget and 45pc of the current expenditure.

Pakistan has just avoided foreign debt default. The bulk of the fresh dollar borrowings goes for debt serving, balance of payments support and comparatively very insignificant foreign credit is earmarked for economic development that is also not fully utilised owing to bad governance and poor service delivery.

While the rupee continues to depreciate against the greenback despite the IMF tranche of over $1 billion, about $3bn of multilateral assistance for development remains unutilised. A monitoring report has highlighted 31 problematic areas for foreign-funded projects. It noted that a lot of money was wasted because of commitment charges and cost overruns.

We have steadily stepped up foreign and domestic borrowings for decades in a futile bid to achieve the elusive long-lasting stability. The top priority should have been economic reforms that could help raise domestic savings, investment, production, exports and encourage import substitution. Unfortunately, foreign loans have not been directed to priority areas. And rent-seeks have benefited the most from public debts.

Thus some analysts also see donor fatigue while the unprecedented rains and floods sharply added to the economy’s owes. Meanwhile, foreign direct investment inflows are very low due to continuing external sector pressures. So far, the government has not initiated any programme, policy or action plan to effectively reduce foreign dependence by utilising local resources and talents.

In the above backdrop, Pakistan has assured the IMF that it is ready to cut the size of the public sector development programme (PSDP) of both the federal and provincial governments. As part of the strategy, the finance division will slow down the financial releases to the ministries to make sure that the PSDP spending is reduced by at least Rs150bn to Rs577bn.

A reduction of $534bn is stipulated in the development spending of federal and provincial governments as part of contingency measures agreed with the IMF. In addition, the government has assured the Fund that further savings of Rs384bn will be ensured from lower priority projects in provincial PSDP budgets. The provinces have also committed to a cash budget surplus of Rs750bn for this fiscal year to help the federation meet the year’s consolidated fiscal target.

In 2021-22, federal PSDP utilisation was just 62pc of the amount budgeted. Provincial PSDP for 2022-23 shows a year-on-year decline of 16pc of the budgeted amount. Analysts say 90pc of all taxes collected by the Federal Board of Revenue go towards debt servicing, defence and grants.

However, in sharp contrast, there was strong growth in the combined development spending of Rs1.21 trillion in the provinces in 2021-22. The spending on upliftment was substantially increased compared to the previous fiscal year and its ratio to current expenditure was maintained or increased. With the general elections so close and shocks suffered by the farm and industrial economy by floods, it is unlikely that this trend will be significantly reversed.

Another positive trend to note is that civil society activists and organisations, concerned citizens and philanthropists are directly providing relief to flood victims in various ways.

Published in Dawn, The Business and Finance Weekly, September 12th, 2022