OVER the past few months, both political parties as well as civil society have separately shown signs of recognition of the need for economic reform. Pakistan’s economy has shown progressive signs of stagnation since the 1990s when compared to its own past vibrancy, while a comparison with much of the rest of the world depicts its relegation in the economic order.
However, given that the government did not to take the initiative over the past one year to shape and influence the discourse over economic reform as cogently and aggressively as it should have, much of the articulation from within the country of the need for reform has so far come from a disparate group of like-minded individuals or industry associations. Importantly, the discourse so far has not been between the political parties and other non-government actors.
In this context, the move by the Pakistan Business Council (PBC) over the past several months to try and evolve a common minimum economic agenda that has the consensus of all major political parties in Pakistan is a watershed event. For the first time, senior figures of the main political parties have sat across the table from a group representing some of the biggest businesses in Pakistan to shape a common agenda which the PBC hopes will ultimately lead to a demonstration of the politicians’ collective commitment by a public signing of the final document.
The agenda in its current shape identifies five reform areas that need to be urgently addressed. Despite the fact that much of this agenda is not new, and has been around in some form or shape since the mid-1990s (starting with the Sartaj Aziz period, followed by the Vision 2010 policy document of the Planning Commission under Ahsan Iqbal of the PML-N, Gen Musharraf’s seven-point plan, the Economic Advisory Council’s nine-point plan of 2009, among others), it unfortunately remains relevant even today.
As a result of the policy inertia over nearly two decades, if not longer, both the urgency as well as the cost of reform have almost certainly gone up. Nonetheless, the cost of further delay is even higher. It is here, in the framing of the issue and in the articulation of the imperative for reform, that the PBC’s effort needs to be strengthened.
While an excellent exposition by the chairman PBC set the stage for the dialogue in Islamabad on April 29, it did not go far enough. For a politician, the fact that Pakistan’s growth rate is now one-third of India’s or roughly one-half that of Bangladesh, may not in itself confer a sense of urgency. The fact that the rural economy has done exceedingly well over the past three years has even served to weaken the impulse for reform in the minds of at least the two major political parties, the PPP and PML-N.
This sense of wider well-being and prosperity under the political government is even shared by some of the economists on the PBC panel, and other eminent commentators, who feel the talk of a ‘crisis’ is a conspiracy against democracy. (So keen are friends on a particular side of the political divide, that they have assumed the same narrative to describe the economy that was used formerly by the erstwhile spokesperson of Gen Musharraf’s regime — which was widely ridiculed at the time).
While it is true that a large part of Pakistan’s population may be insulated to an extent from high inflation and the slowdown in the wider economy, thanks to booming crop prices and rising remittances, this condition is not policy-induced, it is weather-dependent, and it does not represent a structural change in the lives of the people (for the most part). The sharp decline over the past two months in the price of cotton underlines the fickle nature of the turnaround for the rural sector.
Pakistan’s economy has ventured into uncharted territory in some important areas, and it is critical to understand these ‘turning points’ to disabuse oneself of the notion that, since the economy has invariably bounced back from a bad patch in the past, it will automatically do so again. Inflation is not only at historic highs, it is at its most sustained level ever.
Without serious and credible reform, especially on the fiscal front, Pakistan can easily tip into hyperinflation from here. The frequency and magnitude of price ‘resets’ of the consumer basket, the frequency of public-sector demands for both wages and wage increases and the potential for a wage-price spiral taking hold, combined with the spectre of lower external assistance available to finance rigid expenditure demands, are all disturbing markers that have not been crossed before.
Added to this is the disconcerting lack of private investment in the economy, and the secular moribund growth rate of the manufacturing sector. All this to combat and turnaround in the face of looming, even larger challenges: demographics and climate change. This is the state of play, with the current condition of the economy and its medium-term outlook both not very favourable.
This is a daunting agenda, but one that is entirely doable given commitment, policy stability and dedicated implementation. The challenge lies in fixing the common strand of very similar policy plans over two decades, on the one hand, and lack of progress in pushing through a wide reform agenda, on the other.
The common feature is a weak institutional framework that allows protection of vested interest (and creation of some more!).
Without bringing institutional reform and governance issues to the heart of any reform plan, it will not succeed. At the core of this lies reforming the civil service, which is an obdurate stumbling block to efficiency, transparency, change and innovation.
This is the substantive policy agenda the political parties should be signing off to if they are serious about fixing Pakistan.
The writer heads an economic consultancy based in Islamabad.