EDITORIAL: The World Bank’s regional vice president for South Asia, Martin Raiser, while addressing an event jointly organised with Pakistan Institute of Development Economics (PIDE) noted some home truths about the steady regression of key macroeconomic indicators due to resistance and/or reluctance to implement the necessary reforms by civilian and military dispensations that, in his words, accounts for the worst ever economic crisis in the country today.
Raiser referred to the “stop and go cycles of half-hearted reforms that are just enough for the country to muddle through but that offer no long term perspective of improvement.”
There is no doubt that post-7 September 2023, the crackdown against multiple market players - the speculators in the foreign exchange market, consumers engaged in electricity theft and smugglers of essential commodities, including wheat and sugar, operating for decades across our large porous borders - has yielded significantly positive results.
However, the gains allow the country to muddle through, and as stated by Raiser, offer no long-term prospects of improvement.
Raiser further observed that “Pakistan’s economy is stuck in low growth trap with poor human development outcome and increasing poverty. Economic conditions leave Pakistan highly vulnerable to climate shocks with insufficient public resources to finance development and that international experience suggests that domestic debt re-profiling (implemented in 2019 after the IMF approved the Extended Fund Facility programme on 1 July that year) did not always work unless associated with sharp and sustained structural reforms identified over three to four decades ago — which, disturbingly, remain pending to this day”.
Multilaterals as well as bilaterals have long been urging the government of Pakistan to reform the power sector, since decades ago when circular debt was in millions of rupees which today is a whopping 2.5 trillion rupees, to reform the tax structure that continues to rely heavily on indirect taxes whose incidence on the poor is greater than on the rich, a major contributory factor in poverty levels reaching a high of 40 percent today, to continuing the policy of steadily raising the budgeted current expenditure, thereby shrinking the available fiscal space annually and, last but not least, warning Pakistan of an impending water scarcity decades ago that went unheeded resulting in the country’s current status of a water-stressed country.
Raiser advised the government to look at the bigger picture while cautioning domestic stakeholders that creation of a new institution that envisages billions of dollars of investment inflows backed by pledges (memoranda of understanding as opposed to legally binding contracts) may not provide a quick fix of the economy.
This is not to undermine the concerted ongoing civil-military efforts to make Pakistan an attractive destination for foreign investment but to emphasise the fact that basic economic theory dictates that foreign investment would flow into those countries where the economy is strong, growth is projected to rise and key macroeconomic fundamentals, including foreign exchange reserves, are more than sufficient to forestall the possibility of inability to meet the import bill, which includes basic inputs/essentials for industry as well as the householder.
Structural reforms are therefore the way forward and until and unless the administration supplements its crackdown with these reforms that are minutely identified in reports but continue gathering dust in all relevant ministries, the situation is unlikely to lead to sustainable long-term improvement.
Copyright Business Recorder, 2023