AMID much fanfare, the government last week announced an “economic revival plan” focused on what it calls “untapped potential in key sectors of the economy” to attract foreign direct investment from “friendly countries”.
A new body has been created, the Special Investment Facilitation Council, to undertake this task. Any initiative to address the dire economic situation is to be welcomed. But serious measures have to be rooted in reality and not reflect wishful thinking.
A policy aim that sidesteps the country’s macroeconomic crisis and deteriorating state of public finances can only be construed as a flight from reality. Patchwork measures taken in isolation of the overall economic environment won’t work.
The roots of Pakistan’s economic crisis lie in chronic fiscal deficits, responsible for its perpetual balance-of-payments problems, high inflation and macroeconomic instability.
What is needed, therefore, is a comprehensive plan to address structural issues and chart a path to sustainable growth that can end the vicious cycle of high budget/ balance-of-payments deficits, rising debt and chronic foreign exchange crises, which have led to repeated IMF bailouts.
Unless structural issues are tackled, the country will not escape from the trap of anaemic growth, low savings and investment, high deficits, heavy borrowing, growing indebtedness and soaring inflation.
Investment levels only increase in an environment of economic and political certainty and stability, which can build confidence. Uncertainty undermines investment prospects and keeps investors hesitant.
It is a predictable and liberal business regulatory framework and commitments of policy continuity by governments that can foster a positive investment climate.
No one invests long-term capital if the rules of the game are frequently changed. Moreover, a level playing field for investors is necessary to attract significant investment — something the recent policy announcement fails to do, and therefore marks a step backwards in investment facilitation.
The fundamental factors that will determine Pakistan’s chances of achieving sustainable economic recovery are political as well as economic. The most important prerequisite isn’t, in fact, economic.
It is the quality of the country’s leadership and whether it leads a competent government that sees the significance of structural reform and has the motivation and credibility to take measures, painful in the near term, but which yield enduring dividends in the long run.
Pakistan’s economic crises have all been rooted in governance crises, with reform-averse ruling elites almost always seeking pain-free ways to deal with deep-seated economic problems.
Lack of leadership and absence of commitment to reform still stand in the way of economic revival.
Pakistan isn’t unique in facing a severe economic crisis. Many countries across the world — in Southeast Asia, Latin America and our neighbourhood — faced similar if not worse crises but were able to overcome imposing challenges to bounce back stronger and more resilient.
In each case, crises were turned into opportunities. Wrenching structural adjustments, tight fiscal policy and other reform measures were launched by leaderships who were convinced that long-term commitment and consistent policy implementation were essential to move ahead.
Leadership is key. But so is an able and knowledgeable team of professionals who can assist the government in formulating and implementing reforms to deal with crises and ensure the country’s transition to sustained economic revival and growth. It is generally agreed that in every successful case of a country that created a better economic future, the quality of professionals who shaped and oversaw the reform process was critical.
Again, leadership matters. Leaders select the right team and then inspire it to stay the course and deliver. Institutional strength is also important. That determines how effectively policy measures and reforms are implemented. The secular decline in the quality and capacity of Pakistan’s civil service and its continuing generalist nature are now among the key impediments to policy implementation.
An important study commissioned by the World Bank, the Growth Report, examined the experience of countries around the world to draw lessons on what worked to make them economically successful. The report was put together by the Commission on Growth and Development set up by the World Bank, which comprised distinguished members, mostly from the Global South.
Though published in 2008 its conclusions remain just as valid today. Most instructive is the identification of characteristics shared by countries that executed successful growth strategies. They ensured macroeconomic stability, maintained high rates of saving and investment, allowed markets to allocate resources and fully exploited the world economy.
Most important, they all had credible and capable governments. Above all, the report points to the understanding by policymakers that “successful development entails a decades-long commitment and a fundamental bargain between the present and the future”.
In striking such a bargain, both the urgent and important have to be addressed. The urgent is, of course, the immediate financial crisis and the need for comprehensive measures to address that on a durable basis. But the bargain with the future also involves dealing with issues that are just as consequential to economic progress and the country’s future.
The most important of these is the coverage and quality of education that is on offer. Economic progress cannot be achieved without a solid educational base. An educated and skilled workforce is what makes the difference between the success or failure of economic development. This requires long-term policy decisions.
Yet successive federal governments have washed their hands off education using the pretext of the 18th Constitutional Amendment, which devolved education (other than higher education) to the provinces. Provincial governments for their part accorded it little priority.
Decades of neglect and chronic underspending on education have left Pakistan with 22.8 million children out of school. It has earned the country the dubious distinction of having the world’s second highest number of out-of-school children. This has serious ramifications in view of Pakistan’s demographic profile and youth bulge.
It’s growing youthful population means that unless the scale and quality of education is expanded young people with no education or skills will face a jobless and hopeless future and a life of poverty.
What Pakistan must do to secure a better economic future is more than evident — and always has been. But the poverty of leadership and lack of commitment to reform by the country’s political elites have stood in the way of meaningful progress. And it still does.
The writer is a former ambassador to the US, UK and UN.
Published in Dawn, June 26th, 2023