THE all-pervasive divisiveness tearing the social fabric apart calls for a proactive policy of reconciliation of conflicting interests and diverse views, with a view to pull the political economy out of the woods.
To achieve stable economic progress, it is imperative to reduce disparity in individual, household and regional incomes, asset distribution and the level of human resource development among various segments of the population.
Currently unable to invest and increase production of goods and services in a shrinking economy, a segment of economic agents works to increase its share in a shrinking pie. This trend finds support in power politics bereft of any concern for the public good. Individual, group, party and institutional interests are promoted at the cost of collective, community and national interests.
Thus, we are witnessing highly erratic growth across sectors and sub-segments of the economy, contributing to frequent boom and bust cycles and inequitable income distribution.
Economic growth has been hamstrung by the lag in social progress
It is a balanced socio-economic development with at least key sectors of the economy growing in tandem, reinforced by a robust mode of production and income distribution, that can meet the essential needs of the people at affordable prices and ensure decent jobs.
Pakistan is facing a multitude of challenges that are taking a heavy toll on the labour market with greater informality and out-immigration, says an International Labour Organisation (ILO) report released on September 14. Pakistan’s labour market, the report noted, has yet to recover fully from the Covid-19 pandemic and economic crisis, and the number of persons unemployed is projected to reach 5.6 million a year, an increase of 1.5m since 2021.
According to the latest data, two key sectors — financial and industrial — that propel growth in other segments of the economy are not growing in tandem, marked by unsustainable banking lending to the private sector.
Banks’ profits have more than doubled to Rs284.5 billion during the first half of 2023 from Rs126.2bn in the same period last year. Their net income grew 67.7 per cent, up from 23.6pc, triggered by the rise in interest rates during the corresponding period.
On the other hand, in July 2023, large-scale manufacturing recorded a negative growth of 1.09pc when compared with the same month last year and a steeper contraction of 3.62pc on a month-on-month basis. Production of 16 sectors shrank, and eight posted a marginal rise.
No doubt, some business segments have demonstrated their ability to survive and thrive even in these distressed times but at the expense of exclusivity/social exclusion as the costs of doing business and living escalate.
To quote a media report, the persisting elevated rate of inflation is forcing people into a debt cycle and asset sale as they struggle to meet their day-to-day essential needs.
Noted economist Dr Kaiser Bengali says middle-class families are forced to sell their assets to pay for recurring expenses such as electricity bills or fuels for commuting costs. He recalled findings of a survey carried out a decade and a half ago: “We saw that families sold their cars gold and even properties to afford medical expenses.
Addressing a press conference recently, Finance Minister Shamshad Akhtar hinted at an ‘across-the-board cut’ in the annual provincial development plans because the heat of the International Monetary Fund programme has not reached the provinces so far.
On the other hand, the need to ‘develop integrated provincial-level inclusive recovery, strategies for decent job creation, with a particular focus on women and youth’ was recently emphasised by the ILO Country Director in Pakistan, Geir Tonstol. He was speaking at the launch of ILO’s ‘Fourth Decent Country Work Programme’.
While calling the public sector spending ‘a big issue’, Ms Akhtar noted that several challenges had arisen since the devolution of powers to the provinces as federal responsibilities continue to increase.
Ms Akhtar said the assumption of primary budget surplus — the difference between government expenditure and revenue, excluding interest payments — at 0.4pc of GDP or about Rs380bn in the previous budget was ‘based on miscalculations.’ To quote a financial analyst, the debt servicing cost was Rs2 trillion higher than the budget estimate.
Pakistan’s enduring struggle with economic and political instability has left it entangled in the perplexing enigma of unstable development, according to Saddam Husain, lead author of a report on ‘Rethinking Pakistan: Putting House in Order’ published by the Centre for Research and Security Studies.
Pakistan’s development expenditure has reportedly come nearly to a standstill, with just Rs22.5bn spent in July-August of the current fiscal year, against an annual budget allocation of Rs950bn.
Over the past few decades, public policies have been essentially reactive, with a strong bias for pragmatism marked by the absence of overarching guiding principles. None of the major country’s problems have been resolved over the past 20-25 years. Pakistan ranks third among 40 debt-distressed countries, as listed by the United Nations.
More often than not, ad hoc decisions have worked for cross purposes. Curbs on imports stifled economic growth. High rates of energy tariffs negated export incentives. Measures to combat inflation were offset by monetary expansion (the government’s excessive, costly borrowings from domestic banks) without a corresponding rise in productivity.
Social exclusion can only be tackled by a federal, democratic and egalitarian system as envisaged by the Constitution. To quote an analyst, the participation of the people in large numbers in the forthcoming elections and their choice of the right leadership is critical. A high level of participation also squeezes the space of rigging polls as witnessed in 1970, helped by a sharply divided administration.
Provincial governments do enjoy fiscal, legislative and administrative autonomy, but the egalitarian aspect in the federal scheme of things has been largely overlooked, including participatory democracy at the grassroots.
Published in Dawn, The Business and Finance Weekly, September 25th, 2023