Rashid A Mughal
The land of pure and pious, my beloved Pakistan, is facing numerous challenges and issues since long. With every political government in power the issues multiplied rather than solved and eradicated. Staring from external loans, rapidly sliding value of our currency, bad governance, spiraling inflation and lack of control on prices, particularly food items of everyday use for the poor segment of society, deteriorating law and order, selective justice, flawed and tinted policy of hiring, denial of employment to deserving and inducting favorites in administration, unchecked and wide-spread corruption and lack of willingness to control it, foreign policy issues and timely addressing the confrontational and hostile false propaganda against the country and above all the eroding writ of the government and authority are all posing as formidable challenges to the country. The worst is that we have no priorities and the concerned authorities do not seem to be bothered to take the challenges head-on.
Pakistan is not a unique case. A number of countries have encountered broadly similar economic challenges, implemented appropriate policies, and have restored self-sustaining rapid growth with internal and external stability over the medium term after appropriate policies were implemented. Pakistan cannot get out of the current economic malaise and resume sustainable growth without excessive dependence on external handouts. After wasting valuable time in 2007-08, the Pakistani authorities struggled to develop a coherent adjustment program; policy implementation has also remained inadequate. Critical differences between Pakistan and countries that have recently adjusted successfully – such as Chile, Brazil and Turkey – lies in Pakistan’s inability to grasp the seriousness of the economic crisis and lack of commitment to the needed policy reform, that is, poor governance. It would be instructive to know as to what drove other countries– notwithstanding their political constraints – to improve governance and steadfastly implement difficult, but necessary, policy reforms and, thus, determine what Pakistan can learn from their experience to improve governance. Considerable work has already been done to trace factors behind the current economic malaise in Pakistan. The deterioration of Pakistan’s economy over the past three decades can be attributed to the continuation of inappropriate macroeconomic policies that focused on credit-financed consumption demand and imports to promote growth as external resource pressures were eased by debt relief and increased foreign aid.
Pakistan is encountering two inter-related problems: (a) macroeconomic imbalances and inflationary pressures which reflect an expansionary and dysfunctional fiscal policy supported by a compliant monetary policy; and (b) low domestic savings which, given the increasing strains on external debt sustainability and a poor outlook for private capital inflows, are inadequate to sustain investment that is needed for a higher growth rate. Even if energy shortages were to be addressed and the fiscal position is less onerous than at present, there is a high risk that the economy may permanently fall below the potential growth path, estimated at about 6-7 per cent per annum. The obvious fallout would be increased unemployment pressures which, in turn, will spur political instability and militancy. The viscous circle would grow more intractable. A new strategy is needed that will not only change the sources of growth but also alter the mode of implementing policies. The economy should be rebalanced toward higher investment and exports and away from consumption, particularly of the public sector. This will call for not only correcting the macroeconomic imbalances, but — more importantly — significantly increasing domestic savings in a sustainable fashion, reducing dependence on uncertain and addictive foreign assistance and shifting investment to export-oriented activities. There is also an increasing recognition that the deteriorating official capacity to formulate and implement policy reforms – worsening governance — has become a primary impediment which is building on itself.
Above all, there is no convergence among the interests of the ruling elites, leading to a lack of national consensus and, thus, policy gridlock. Inaction has continued to build upon itself, fueling corruption, and progressively reducing the effectiveness of policy responses. The current adjustment programme that is supported by an IMF stand-by arrangement is essentially tentative and needs to be better integrated with a longer term growth strategy. Pursuit of short-term relief from internal and external imbalances without commitment to a longer-term path of adjustment and resource allocation is counter-productive. Formulation of an objective adjustment programme is an important starting point and not an end in itself. Flexibility to accommodate changing domestic and external environment is a virtue as long as eye is not taken off the underlying objectives. A sustained increase in domestic savings to serve as the primary source of investment is central to self-sustaining growth and adjustment.
Good governance — objective commitment to implementation of difficult policy measures — is the single most important ingredient of successful reform. A popularly elected government with a wide electoral base has a better chance of supporting reforms. Good governance implies not only absence of corruption, but also — and more importantly — not leaning against market forces unless there is an explicit case of market failure. Regulation, including of the financial sector, should aim at improving resource allocation, not turning the state as allocator of resources. Foreign financing requirements are increasing at a time when availability of such financing is shrinking for Pakistan. With crowding out, little progress in solving the energy Gordian Knot, and market uncertainty, private sector recovery remains in doubt. With economic slowdown, banking sector balance sheets are coming under pressure and nonperforming loans are increasing. There could not be a more pressing time for getting serious about implementing the programme. The lack of leadership at the political as well as at the technocratic levels might let the moment slip if urgent action is not taken to meet the challenges with a firm determination.
— The writer is former DG (Emigration) and consultant ILO, IOM.
