The quest for a rule-based economy

During Eid holidays a simple graph was viral which depicted the secular decline in Pakistan’s economic growth since the 1990s relative to India, on fifteen years rolling basis. The frequency of low growth phases is growing. Meanwhile, the duration of economic recovery in each cycle is shrinking to shorter periods.

The anemic economic growth is the biggest challenge in a country, which is dominated by a young and growing population. The way things are today, poverty is on the rise and the middle class is thinning.

This is exact opposite to what is happening in neighboring India. One can see the vibrancy of middle class oozing in India from the size of crowds in the stadia during IPL matches, which is stark opposite to the (lack of) enthusiasm of crowds during recent PSL fixtures in Pakistan.

The good thing is that the realization of the long-term economic mess the country has been in is sinking in. The political pressure from the growing youth voters and media is exerting pressure on the powers that be to focus on an economic revival on a sustainable basis. The young population wants economic prosperity and security. Now the pursuit of turning Pakistan into a citadel of Islam needs to be tempered with a large pinch of reality.

However, the youth is frustrated and losing hope due to the actions of the powers that be, which are divergent from ground realities. They are still focused on the bandage approach. The idea is to keep the economy afloat on the current, albeit failed, model based on support from friendly countries and international financial institutions (IMF, WB, etc.) while dodging tough reforms at the same time.

The vibes coming from the US and Saudi Arabia are that they may not allow the country to default and would keep it afloat by ensuring enough balance of payment support through bilateral injections and the next IMF programme. That is comforting news. However, on the other hand, that is giving a lifeline for those at the control of the helm to continue with the status quo.

The country needs a rule-based economy and rule-based system. Right now, one rule exists, i.e., might is right. The investment is sought under the umbrella of SIFC (Special Investment Facilitation Council), which would ensure bypassing other hurdles such as NAB (National Accountability Bureau) and courts. Those who are routing through SIFC are kosher while the rest must face all the hurdles. The bureaucracy would shy away from doing anything that is not coming under the ambit of SIFC, as they fear NAB and likes, otherwise.

The new rule is for investors to knock the SIFC door to ensure establishment’s cover, while others may choose not to invest at all. What is missing is rule-based economy, an economy that treats all investment opportunities on their merits.

The country is in dire need of private sector-led investment, which ensures Pakistan is in a position to run a healthy current account deficit while FDI is used to build reserves. That’s the economic model that Indian economic growth spurred on following reforms in 1990s. And the broad-based investment needs stability in the political system, which is badly missing in Pakistan.

It’s not just the lack of investment in mining, agriculture and information technology that has led to the country’s secular decline. In addition to above-mentioned factors, the lack of spending on human development is another reason. The country badly needs to spend on human development – healthcare and education. This should be the priority to correct the long-term path.

Once people have skill sets and education, they can innovate. Once the system has appetite and room for entrepreneurship and productive financing, the private sector can do wonders in mining, agriculture, and information technology.

The time is running short, as the next 3-5 years are very critical to change the economic trajectory. The economy is progressively on a downward trajectory. The forecast for the next few years is grim. That could lead to deterioration of law and order, and further polarization, as the state writ is focused against selected elements. This is not sustainable, and it can implode, if things are not put back on the corrective path.

Copyright Business Recorder, 2024