April 11, 2023
ISLAMABAD – Pakistan’s economy has long been suffering from several structural problems. But instead of finding sustainable solutions to those problems, our successive governments have often relied on quick fixes.
These problems have so much compounded that the government of the day alone cannot address them successfully. Problems like alarmingly high levels of domestic and external debts, fiscal deficit, unemployment, poverty and critically low levels of exports, remittances, foreign investment and foreign exchange reserves are all interlinked. And all of them are structural in nature.
To address them, Pakistan needs to formulate sustainable, long-term policies and ensure its flawless implementation year after year — for a decade or so. But that is possible only under a stable, vibrant democracy — not military dictatorships or hybrid regimes.
Pakistan in 2023 is facing such deep-rooted economic problems that if a long-term policy for economic reconstruction is not designed and owned by all stakeholders of the state and if it is not implemented honestly, we may not see a prosperous Pakistan emerging even in 2033.
But for that to happen, political stability is a must. How and how early this required political stability is achieved amidst the ongoing political and constitutional crisis will determine how best we can sustainably address our structural economic problems. It is a defining moment in Pakistan’s history, and any misstep will cost the nation dearly for decades.
The World Bank recently said Pakistan’s economy might grow just 0.4 per cent during this fiscal year ending in June and projected only 2pc growth for the next fiscal year. It said poverty is projected to increase to 37.2pc this year pushing an additional 3.9m people into poverty as compared to last fiscal year.
In the last fiscal year (under the PTI government), Pakistan’s GDP grew 6pc, but it started a nosedive right from the beginning of this fiscal year (under the PML-N-led coalition government). Estimates vary for this year’s economic growth, with the World Bank projecting 0.4pc and the government forecasting 1pc plus.
Even if we assume that the economic growth this year will be 1pc (down from 6pc last year), the five percentage points loss of growth means job losses of no less than 2.5m.
This means by June this year, about 9.5m employable Pakistanis will be without a job since, at the end of last fiscal year, the total number of employable but jobless citizens stood around 7m.
Imagine what is going to happen with so many people having no jobs (though some of them will have low-paid jobs in the informal economy).
Imagine what may happen with an additional 3.9m people being trapped in poverty and the poverty rate hitting 37.2pc. It doesn’t take a genius to figure out how all this can feed extremism and terrorism in the country, necessitating the allocation of even greater resources from the national exchequer to fight the twin menace.
Amidst such grim economic challenges, politicians remain engaged in bad politics. The (incomplete) National Assembly has passed a resolution against the Supreme Court and instructed the federal government not to facilitate elections in Punjab on May 14.
The government’s demand for a full court to decide the timing of elections may have merit. But rejecting the apex court’s current verdict violates the Constitution. It is certainly messy politics and will only deepen the ongoing politico-economic crisis.
When PTI dissolved the provincial assemblies of Punjab and Khyber Pakhtunkhwa earlier this year, it did a disservice to the economy. Who didn’t know that this move would create more uncertainty and would, in turn, make the economic crisis graver? But they did it. And now the PML-N-led coalition ruling the federation seems reluctant to go to polls.
Our politicians keep making mistake after mistake for political gains or to avoid the erosion of political capital, only to contribute to the worsening of economic problems. The country cannot afford these foul politics anymore.
Economic growth has stalled, forex reserves of the central bank are not enough to cover imports of even a month, inflation is skyrocketing, factories are closing, farms are not producing enough to feed 225 million Pakistanis, people continue to lose jobs and poverty has become so widespread and acute that men and women are losing lives just to get a sack of free wheat flour, distributed by the government.
These are extraordinary circumstances. And they point to serious gaps in governance and administration. Nothing conventional will work under these circumstances.
Take the example of conventional inflation-fighting by the State Bank of Pakistan (SBP). It keeps raising interest rates only to see inflation rise even faster. Something somewhere is terribly wrong.
Higher interest rates contain inflation only when they are accompanied by fiscal discipline and only in economies that are well documented and where governance and administration have not become alien words.
In Pakistan, not only fiscal discipline remains missing, but the informal economy also keeps growing while governance and administration continue to weaken. How can the local administration crack down on smugglers and hoarders if it cannot ensure the smooth distribution of free flour?
And how can a civilian government ensure the maintenance of law and order — so vital for economic growth — if it permanently needs a paramilitary force in Karachi, the economic hub of Pakistan, to do that?
Notwithstanding another 100 basis points increase in SBP’s policy rate announced recently, high inflation is here to stay. The World Bank says inflation will average around 29.5pc in the current fiscal year ending in June. Annualised national average consumer inflation in March 2023 stood at 35.4pc with food inflation at 47.1pc in urban areas and 50.2pc in rural Pakistan.
Published in Dawn, The Business and Finance Weekly, April 10th, 2023