Prime Minister Shehbaz’s rudderless government has failed to inspire trust in the economy, currently in a mess, with brewing currency, energy and commodity crises, making bare survival difficult for a wide majority of lucky working Pakistanis. What it must be like for the jobless is anybody’s guess.

The rise in crimes committed by people against their own families gives clues about the severity of stress in society. No one expects wonders, as all efforts so far have failed to deliver tangible results. Both former and current finance ministers Miftah Ismail and Ishaq Dar can self-aggrandise as much as they want, people and businesses doubt their skills and intent.

Former finance minister Miftah Ismail did succeed in striking the International Monetary Fund (IMF) deal but at a crushing cost for commoners and corporates that, in the end, only bought some time as the country is back where it started — on the verge.

Instead of directing policies to tax parasitic rent seekers and wasteful elements, he let the burden of new levies fall evenly on everyone, including the productive sectors and those already crushed by inflation. It is hard to digest his plea that there was no option.

In its attempt to appease all stakeholders, the government is not able to pacify anyone, especially the IMF, whose support it desperately needs at the moment

One would like to know who stopped him from discouraging the use of fuel-guzzling private vehicles for a specified period to curb energy bills. He could have cut recurring public spending instead of chopping development budgets and opted for a policy mix that shielded industry by blocking resource flows to property and other speculative businesses. Banks should have been stopped from meddling in the currency market and a stand taken on taxing retail that has avoided the tax net thus far.

This is an emergency; even the US, the world champion of the free market, does not hesitate to intervene when the situation demands, as evidenced by recent history. This makes the market argument of neo-liberals ring hollow and a mere pretext to serve the rich at the cost of the poor.

Ishaq Dar, who assumed the foreign minister office as soon he returned, appears clueless, treating the make-or-break situation conventionally. The current crisis demands decisive actions that are missing for want of clarity or political compulsions.

Several key members of the ruling coalition economic team were approached to share the critical elements of the government’s plans to fix the economy in case the IMF delays or decides to suspend the $7 billion programme. They all opted not to comment. Pakistan secured $6bn IMF’s Extended Fund Facility in 2019, which was increased by a billion to $7bn earlier this year.

Dr Ali Cheema, an economist who is a member of multiple reputed research outfits and teaches at the Lahore University of Management Sciences, avoided sounding alarmist. Commenting on path ahead he said, “the biggest thing the governments can do to control inflation in the short run is to bring the fiscal deficit in control but in a way that protects critical public investments.

Currently, a combination of high global commodity prices and an expansionary fiscal stance is creating inflationary pressures and forcing the State Bank of Pakistan to adopt a contractionary monetary policy stance to stabilise the economy. However, monetary policy’s effectiveness is blunted if the fiscal stance is not coordinated.

“The other things that governments need to do are: (a) introduce taxes on real estate in the form of a robust property tax framework that generates revenues for investment by city governments and to reduce the returns on non-productive investments, (b) reform the tariff structure to address the anti-export bias in trade policy, (c) reform agriculture pricing policy and make it work for food security and (d) modernise agricultural extension services and make it technology-based.

“The aim should be to increase productivity and remove the bias against tradables in our economic structure. In addition, governments need to introduce a plan to shift the energy mix towards renewables and water conservation in agriculture.”

A commentator who tracks economic trends closely was confident that friendly countries and donors would come to the rescue. “Pakistan needs immediate dollar flows to ward off the default threat. All we can do is hope and pray that the help arrives in time. If it doesn’t, the crisis will deepen, and public discontent will spill onto the streets rendering the country still less governable.

“All parties that care for the country and its people can settle their differences later. They need to pool their own resources and coopt knowledgeable private persons to chart out a path of recovery and sustainability.”

Dr Rashid Amjad, former VC Pakistan Institute of Development Economics who currently teaches at Lahore School of Economics, was brief and precise: “The economy is heading into a low-level growth trap from which, given the lack of clarity in government policies will become increasingly difficult to break-out from. In its attempt to please everyone, the government is pleasing no one, especially the IMF whose support it desperately needs at the moment.”

Published in Dawn, The Business and Finance Weekly, December 5th, 2022

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