WITH the eagerly awaited national polls set to be held on February 8, most political parties — barring the one that has recently fallen out of favour with the country’s establishment — have begun to build up their campaigns for power.
Shortly, they are expected to come up with their election manifestos, outlining their broader political and economic plans for the next five years to give people an idea about how they intend to govern this country if elected. While people are keenly waiting for the announcement of the election programmes of the major parties, most will be interested in learning how each of them plans to turn the nation’s moribund economy.
The devil will indeed be in the details since almost all parties have a sort of consensus on the broader economic policies. One thing, however, is clear: it will not be a walk in the park for any party to fix the economy. The situation, by any definition, is dire.
The revised national accounts show that the economy is shrinking as the GDP growth contracted by 0.17 per cent last fiscal year. Helped by the implementation of the short-term $3 billion Stand-by Arrangement (SBA) loan, the economic volatility is receding and some stability returning.
With elections around the corner, political parties need manifestos that hammer out details for a sound economic plan
The monthly headline consumer inflation remains high but is projected to drop over the next several months. The exchange rate is no longer deteriorating as it was until the end of August, thanks to the army-sanctioned actions against illegal dollar trade and unchecked smuggling to Afghanistan. The current account deficit is contained, and the haemorrhage of foreign exchange reserves stopped — for now.
The primary surplus target for the first quarter of the present financial year has been achieved. Nevertheless, this reduction in volatility has come at a heavy cost to economic growth, public and private investments, and jobs.
The major structural challenges — how to control debt accumulation and current account deficit without suppressing growth, increase one of the world’s lowest tax-to-GDP ratios of less than 9pc, boost industrial and agricultural productivity and exports, manage haemorrhage of resources through public sector entities, settle circular debt in the power sector without further raising the electricity prices and so forth — remain unaddressed.
So far, only the PML-N, the party supported by the establishment to return to power, has indicated how it plans to revitalise the economy. And these aren’t any different from the usual policy prescriptions that have pushed the economy into a low-growth trajectory and brought us to the verge of default multiple times.
In his recent public appearances and interactions with the business community in Sialkot and Lahore, PML-N leader Nawaz Sharif hinted at an “ask-no-question” policy for the investment coming to the industry, saying that the future economic decisions would be taken “boldly” in consultation with the business community.
“We understand Pakistan’s economic difficulties. We have always consulted you [business community], and now we will proceed only with the consultation,” he said. “There should be a policy of not asking questions about the money coming into the industry,” he said.
If the past is anything to go by, it is clear that the PML-N would focus on immediate turnaround rather than addressing the structural issues that lead to a brief period of boom on massive public spending followed by periods of bust once the forex reserves run out and fiscal deficit becomes unmanageable without further accumulation of debt. This consumption-fueled growth is exactly what a senior World Bank bureaucrat has warned us against.
Martin Raiser, the World Bank’s regional vice president for South Asia, was of the view that Pakistan should resist the temptation to use short-term measures like domestic debt restructuring and attracting one-time investment without addressing the country’s ‘big picture issues’ through reforms aimed at improving the larger business climate, taxation, human capital and business competitiveness.
Last week, he told the media briefing that such steps could help once or twice, but it was no solution to Pakistan’s challenges, which could only be addressed by improving the business climate, providing a level playing field and removing distortions and tax exemptions. His remarks were in line with an earlier International Monetary Fund (IMF) advice to the government against creating a group of preferred investors.
Najy Benhassine, the World Bank’s country director for Pakistan, was quoted to have said that he hoped his institution could disburse up to $2 billion to the country during the current fiscal year, provided (the) “elections were held on time, and the present and new governments remain committed to reforms and deliver on promised efforts”.
But the “big picture issues” that the World Bank executive has advised to address for sustainable growth are missing from the economic discourse of almost all political parties. Even the PTI, which promised deep reforms to address the structural issues and problems before it came into power in 2018, pursued the same policies to show immediate economic success.
Although the PTI government, led by Imran Khan, had managed the economy quite well during the pandemic, it could not resist the temptation of employing policies that would fuel consumption-based growth for immediate economic success.
The country’s economy grew by 6.17pc in its last year before the party was ousted through a no-confidence vote, and people were left to watch the reenactment of 2018 as the twin deficits skyrocketed, growth stagnated, inflation broke new records in a tanking economy.
Imran Khan had also used tax amnesties to encourage investments in real estate and industry, as Nawaz Sharif hinted at. What he is missing is the fact that his previous government had sufficient support from the IMF and other lenders, low oil prices, with China pouring in billions of dollars in large energy and transport infrastructure projects under the China Pakistan Economic Corridor initiative. The PTI government, too, was able to secure a good deal from the IMF. The significant increase in debt inflows and remittances supported generous fiscal incentives it had announced for the businesses.
But those times are over. The long and difficult negotiations with the IMF that finally produced the short-term stand-by facility underscore that Pakistan no longer has the kind of leverage it used to have to secure international financing to support its spendthrift growth policies.
For politicians, especially the PML-N leader who is hoping to be elected as the country’s prime minister for the fourth time, it is advisable to shed their usual penchant for quick fixes and prepare people for the tough actions that are needed to put the economy on the road to a long-term, sustainable growth trajectory.
Published in Dawn, The Business and Finance Weekly, December 4th, 2023