Is the PML-N’s established economic approach still viable in 2024? The PML-N’s established economic model centered on infrastructure development and exchange rate management. Over the past three decades, this model has yielded mixed results across its various terms in power. While the first PML-N government in 1992 achieved an impressive 7.7% economic growth, the second in 1997 experienced a significant downturn to 1.0%. More recently, during their 2013-2018 tenure, growth averaged around 5.0% annually. However, the GDP growth estimate for fiscal year 2022-23 was significantly reduced to 0.29%.
I am convinced that the PML-N’s established economic model will not be effective in 2024. Two factors raise serious concerns about its viability: the significant budget deficit of Rs8.5 trillion, which limits resources for ambitious infrastructure projects, and the State Bank of Pakistan’s low foreign exchange reserves, which constrain its ability to support the value of the rupee against the dollar. These challenges cast doubt on the model’s ability to deliver strong economic growth in the current context.
The new Finance Minister steps into office amidst a backdrop of deep-rooted, entrenched economic challenges, ranging from a balance-of-payments crisis to soaring inflation and mounting debt burdens. Navigating this complex economic landscape will require two things: vision and decisive action.
Balance-of-Payments Crisis: At the heart of Pakistan’s economic woes lies a severe balance-of-payments crisis, characterized by a chronic shortage of foreign exchange reserves. Over the past eight months, the cumulative trade deficit was recorded at $14.87 billion, reflecting a remarkable 30% reduction in the trade deficit but the depletion of foreign reserves has left the country vulnerable to external shocks, threatening its ability to meet its international obligations and maintain macroeconomic stability.
Elevated Inflation: In January, SPI inflation (Sensitive Price Index) increased to 36.2% year-over-year. Gas charges up 520%, electricity charges up 71%, tomatoes were up 154%, fresh vegetables up 80%, sugar up 55% and wheat flour up 41%. Purchasing power of ordinary citizens has seriously eroded exacerbating poverty. Spiraling food and energy prices have made it increasingly difficult for households to make ends meet.
The new Finance Minister would have to tame inflation which will require a combination of fiscal discipline, supply-side interventions, and targeted social safety nets to shield the most vulnerable segments of society from the adverse effects of rising prices.
High Fiscal Deficit: The Rs8,500 billion fiscal deficit poses another significant challenge for the new Finance Minister. Years of reckless spending and a failure to curtail losses in the so-called State Owned Enterprises (SOEs) has left Pakistan’s public finances in disarray. The gap between government expenditures and revenues continues to widen, straining fiscal sustainability and limiting the government’s capacity to invest in critical infrastructure and social services. The new Finance Minister would need a new vision to address this gross fiscal imbalance and tough decisions, including expenditure cuts, structural reforms to improve fiscal management and wholesale privatization.
Unsustainable Debt: Pakistan’s total debt and liabilities, including domestic and external debt, is fast approaching Rs80 trillion or $285 billion. The burgeoning debt burden casts a long shadow over our economic prospects, constraining fiscal space and undermining long-term sustainability. The gross external financing requirement for the following twelve months stands at a colossal $25 billion. Mounting external debt obligations, coupled with high servicing costs, have left Pakistan heavily reliant on external financing.
The new Finance Minister must prioritize debt management and debt restructuring efforts to put Pakistan’s debt trajectory on a more sustainable path. The new Finance Minister must also explore avenues for debt relief and renegotiation with creditors. The new Finance Minister is going to need a paradigm shift in fiscal policy and debt management practices.
As Pakistan’s new Finance Minister assumes office, he faces a daunting array of economic challenges. The new Finance Minister cannot rely upon PML-N’s old economic model. The new Finance Minister is going to need a new vision more than past experience. The new Finance Minister would have to undertake meaningful reforms. The new Finance Minister would have to tackle the root causes of Pakistan’s economic malaise head-on.
The days of relying on outdated economic models and past experiences are over; what Pakistan needs now is a new vision, and a fresh approach, untethered to the constraints of the past. Pakistan now requires creativity. Pakistan now required a willingness to challenge conventional wisdom. The new Finance Minister must embrace unconventional solutions.
The new Finance Minister must not passively accept the terms dictated by the IMF. The new Finance Minister must assert Pakistan’s sovereignty and negotiate from a position of strength. The new Finance Minister must recognize that vision is more important than experience. While experience certainly has its merits, it is vision that will ultimately guide Pakistan through these turbulent times.
Crucially, the new Finance Minister cannot afford to be shackled by the legacy of past economic models. The economic playbook of the PML-N era is outdated and ill-suited to the challenges of the present moment. What is needed now is a clean break from the past, with a focus on innovation, adaptability, and bold experimentation. The stakes could not be higher, and the time for action is now.
