Various possibilities regarding how to bring the economy back on track are being discussed in financial, trade and industry circles, and it is becoming clearer that there may be no short-term remedy for our economic troubles. Instead, there appears to be a growing consensus that the suffering of the common people may continue for a historically much longer period even if the IMF comes to the country’s support.
Much has gone wrong over the last 10 months. Many industries have been practically forced to shut production or bring capacity below 40 per cent; prices have risen at rates never experienced in recent history; and new waves of inflation are already in the pipeline, threatening to tear to shreds what remains of the purchasing capacity of common people.
There is a strong fear among some stakeholders that the economy may never come back on track, and the situation may continue worsening both on the economic and political fronts. Record inflation, which may reach 33 per cent by the end of the current fiscal; critically low levels of foreign exchange reserves, and 44pc devaluation of the rupee since April 2022 have left no space for the economy — or the government — to perform. The estimated economic growth rate for FY23 has been slashed to 1.5 from 2pc. Pakistan has also suffered severe reputational damage due to frequent downgrading of its credit ratings. The three top rating agencies — Fitch, Moody’s and S&P — have downgraded Pakistan seven times in the last 10 months — a situation never experienced by this country.
Yet, despite all this gloom, some are keeping their hopes alive.
“I sincerely believe Pakistan is alive, and some urgent steps can immediately change the economic situation. We need to start with drastic austerity,” said Jawed Bilwani, chairman of the Pakistan Apparel Forum and a well-known exporter and business leader.
“Several dozen advisors [from the prime minister’s cabinet] should be sent home; expenses should be slashed across the board; and perks like free electricity and fuel for bureaucrats should be withdrawn. The government needs to bring its house in order,” he said.
“It is quite pathetic that 90pc of our political parties are in government, and they still cannot run this country,” he added.
On long-term measures to bring the economy back on track, he said: “Every year, we produce goods worth $60 billion from the agriculture sector by using only two million hectares of land while three million hectares remain unused. This is something we must review.”
Samiullah Tariq, head of research at the Pak-Kuwait Investment and Development Company, had a different view: “In the short term, we have to focus on increasing remittances and exports to eliminate the dollar crunch.”
“For the long term, structural reforms like overhauling the power and gas sectors, addressing fiscal deficits through amendments to the National Finance Commission (NFC), broadening the tax net, industrialisation, and the development of the IT sector should be priorities,” he said.
Most researchers and analysts who spoke to this correspondent regretted that every government tries to take short-term measures — mostly driven by their political goals — which have long-term disastrous repercussions for the economy. They agreed that this is a serious problem pushing the country towards sovereign default. They noted that it had given IMF greater leverage, and everyone is now willing to do whatever it takes to secure IMF help and avoid default.
“The resumption of the IMF programme is a bitter pill as some immediate measures will undoubtedly worsen inflationary readings. However, this course of action needs to be undertaken to fix some of the structural flaws responsible for the country’s worsening economic conditions,” said Tahir Abbas, head of research at Arif Habib Ltd.
“Moreover, the country is expected to remain in the IMF programme while structural issues are addressed in the energy sector; the tax net is increased; the budget deficit curbed; state-owned enterprises (SOEs) reformed; exports revitalised and current account deficit reduced,” he said.
Faisal Mamsa, chief executive of Tresmark, a terminal that tracks live prices in financial markets, echoed others in saying the economy can be brought back on track with basic measures like increasing revenues through the broadening of the tax base, decreasing state expenses, disposing of loss-making entities, and then focusing on exports and building human capital.
Published in Dawn, February 22th, 2023