The economic outlook

Most of the catchphrases from the PTI’s economic team have been right. The Prime Minister Imran Khan made a promise that under his tenure, Pakistan would see a spike in investment and would then become an ‘Asian Tiger’. His ministers have spoken of ‘export-led growth’ and ‘reduction of deficits.’ Lest one forgets to look at the tumbling stock markets, one would think that Pakistan’s economy is on the right track. More than that, the PTI’s ministers would have us believe that they are trying something that no one else has done before. However, very little ‘new’ can be witnessed in the policies and rhetoric coming from the current government. Pakistan’s public sector has been on a three-decade old austerity drive, which started in the 1990s after the first IMF agreement was signed. Since then, the fundamental principles of the country’s economy have remained the same, no matter how much one government or another has tried to spin us into believing.

The hope from the PTI was that it would try a new approach – and not try the same approach but only properly. We can start with a few fundamentals. Pakistan’s economy suffers from low rates of investment, a high rate of inflation, low GDP growth, a terrible balance of trade and highly unequal economic growth patterns. The question is: how does a government solve it? Should it spend more on infrastructure and public-sector investments, should it focus on giving a free rein to the private sector or should it attempt a combination of both? The government’s approach seems to lie in giving a free rein to the private-sector model of the answer, which is strange given its commitment to mass public infrastructural spending funded by foreign loans in the shape of CPEC.

It would be fair to say that to fix the economy we need to fix one fundamental issue: investment. Pakistan’s investment-to-GDP ratio is an abominable 16.7 percent. One solution to this problem has been public-sector spending, which is partly what was witnessed in the growth-spurt at the end of the PML-N’s tenure. With the PTI stepping in, it has correctly pointed out that much of the PML-N’s public infrastructure spending was financed by debt. But this in itself does not make this approach wrong.

The real test is whether this public spending will improve private sector investment in Pakistan. The massive cuts in public spending indicate that the PTI government is taking the route of solving the more cosmetic problems in the economy, rather than fixing the fundamental ones. This has led to a situation where thousands of businesses are now reported to be in trouble due to the increased exchange rate and increases in gas and electricity tariffs. Automobile part makers have already issued a public appeal, but this is only the tip of the iceberg. The booming construction and real-estate sector is now in stasis. The cost of construction is too high and the overactive NAB has investors on edge. Thousands of daily wagers no longer have roads and homes to build. The increase in interest rates, which the PTI has fiercely defended, has also been criticised. The logic here is strange. The PTI’s own economic gurus have claimed that high interest rates encourage banks to lend, but to whom will they lend if there are no takers? Higher interest rates discourage businesses from investing. It is all good to claim that Pakistan is moving towards economic security, but there are more than enough warning signs to suggest that the reverse could be true. There is time for the PTI to take stock of its economic policies as it moves forward – unless it wants to be reminded constantly of the many warnings independent analysts and those inside industry were issuing.