In its recent State of the Economy report, the central bank rightly noted that the shock from Covid-19 “should not undermine the urgency of addressing long-standing structural impediments to higher and sustainable growth”. This is not exactly a new diagnosis for Pakistan’s economic troubles; the central bank has been pointing to the country’s structural problems since at least the 2000s. But to no avail.
What are these structural reforms, the absence of which prevents Pakistan from taking off and keeps it stuck in the vicious cycle of IMF-led stabilization that comes at the cost of growth, followed by brief periods of medium-paced growth, and then bust again.
In his talk at a recent webinar organized by PIDE, Masood Ahmed ex-IMF Director, Middle East Department, listed a host of things that come under the banner of structural impediments that require reforms - from institutional reforms, public enterprise reforms, energy pricing, to labor market reforms, productivity, and so forth. Again, this is not something entirely unknown to the political, economic, and business elite of the country.
This is a country whose mandarins and other important private and public sector stakeholders know the problem and know the solution. It is as if a fat, unhealthy, chain-smoking man who knows he must quit smoking, change his diet, and adopt a healthy lifestyle; failing which he is likely headed for an untimely death or an irreversible painful existence. Yet he chooses not to do the right thing.
Diet is indeed difficult. To choose pain today in hopes of rewards later requires more than just knowledge of problem and its solutions. In Pakistan, however, as Masood noted, finance ministers waste time managing books and worrying about near term – the next quarter so to speak.
The solution to Pakistan’s problems, therefore, is not economic; it is political, cultural, constitutional and in other areas which are beyond the scope of mere economic plumbing by local or imported technocrats. This seems to be a growing consensus both among politicians and among the economist community.
The resolution that seems to echo the most at PIDE’s webinar (titled: Managing growth with stabilization) was the need for cross-party political consensus on key economic affairs. And if Masood pointed to the need to have a high-level conversation and cross-party political consensus over 10-20-year economic strategy, then Shaukat Tarin (former finance minister) stressed that any party which forms federal or provincial government must sit with their opposition parties to develop a firm consensus on at least 6-7 points on the economic way forward.
The irony is that even this idea - the need to have broad consensus among political and economic elite vis-a-vis economic strategy - is not new. As early as 2011, former President Asif Ali Zardari first floated the idea that Pakistan needs a Charter of Economy ala Charter of Democracy.
This was later hyped by Ishaq Dar during the PML-N tenure, a time period during which business bodies, the media, and the think tanks also helped shape the debate by sharing their ideas of what should a Charter of Economy look like. BR Research also shared its fourteen points of Charter of Economy that unlike many other proposals focused on aspects of documentation, representation, transparency, and economic justice rather than any sector specific strategy. (See BR Research’s ‘The Fourteen Points of Charter of Economy’ & ‘Charter of Economy: follow up on the 14 Points’ published May 30 & Jun 1, 2017, respectively)
After the PTI took charge in 2018, both Imran Khan and Asad Umar have stressed upon the need for a Charter of Economy. Yet despite across the board consensus over the need to have a Charter of Economy, the charter remains elusive since none of the three leading parties have made serious efforts towards achieving a consensus towards it.
Is a charter possible by 2023? Not likely given the hostile political environment, not helped by PTI’s anti-corruption mantra that seems to push hopes of politics of reconciliation further away. In the meanwhile, when the IMF programme comes to an end, and as soon as green shoot of GDP growth surface above the soil of stabilization, Pakistan’s economy might have to get ready for another bust.