Tasks for the PM

Editorial Board
September 25, 2022

The main thrust of Prime Minister Shehbaz Sharif’s passionate appeal to the world during his speech at the UNGA was a call to undo the climatic injustice that the industrialized and mostly...

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The main thrust of Prime Minister Shehbaz Sharif’s passionate appeal to the world during his speech at the UNGA was a call to undo the climatic injustice that the industrialized and mostly rich countries have inflicted upon countries such as Pakistan. He was right in pointing out that developing countries have made little contribution to global warming and even then have been suffering from the worst consequences. The misery that the people of Pakistan are going through needs worldwide attention and the PM and Foreign Minister Bilawal Bhutto Zardari have done a good job by holding meetings with the world leaders and being unequivocal in highlighting Pakistan’s needs at this time of an unprecedented crisis. Their voices have been complemented by statements from the UN chief who has continued with his efforts to muster support for Pakistan. The diplomatic offensive seems to be working. The world is warming to the idea that the scale and magnitude of the monsoon calamity calls for extraordinary answers. Voices from within the UN system are making a case for a structuring of Pakistan’s external debt and a moratorium on repayments. Bond markets appear jittery over the suggestion, which is understandable given Pakistan’s precarious financial situation, but they will come around to the emerging scheme of things in time, especially following the government’s clarification that the probable moratorium would not apply to commercial debt. Paris Club lenders are expected to convene by the end of this year to thrash out the precise contours of the mooted debt restructuring. Similar support from Pakistan’s Iron Brother China – one of the country’s major lenders – cannot be far behind. But does Prime Minister Shehbaz Sharif realize that it is not 'mission accomplished' or even 'mission launched'? It is 'mission set to launch'.

Rescue and relief activities are still ongoing in the wake of the colossal deluge. The next job on the government’s hands will be organizing for reconstruction. How to make the process people-centric, climate resilient, and future-proof are massive challenges. What's more, the government must act with utmost speed. Even as we write this, millions are stranded in the middle of stagnating floodwaters, beset by the worst forms of hunger, disease. The human tragedy wrought by the disaster is still unfolding and its toll will continue to rise in the weeks and months ahead. The only way to mitigate its destructive potential is to urgently match it with an adequate response; speed, again, is of the essence. This is probably why experts within the UN system are counselling Pakistan to suspend external debt repayments to create the necessary fiscal space instead of waiting for fresh funding.

The reconstruction effort ahead of us promises to be daunting. The design of the programme must be informed by green and climate-resilient building and must have state-of-the-art renewable energy technologies at its heart. Finding synergies between the national economy and the reconstruction effort is paramount. For instance, indigenizing mass manufacture of innovative prefabricated housing units could be equally beneficial to the reconstruction effort as well as the rest of our economy. Finally, the government must be mindful that any debt restructuring creates enough time and fiscal space to deal with the destruction. Pakistan needs external debt repayments suspended for at least three years. The government can then use those funds to seed reconstruction and use that time to negotiate financing through debt-for-climate swaps and similar arrangements.

Arduous as the tasks of reconstruction and global climate stewardship are, PM Sharif’s job does not end there. He has to contend with the challenge of staying true to the economic reform already on the agenda so that Pakistan’s economy emerges stronger from the IMF programme next year. This will come in especially handy if, for instance, we find down the line that our global partners’ contribution towards our reconstruction is underwhelming, forcing us to raise our own resources. The government has recently seemed keen on government-to-government deals, but our go-to mode of financing in that case should be direct foreign investment (DFI). However, fund managers are not known to flock to badly managed, badly structured economies to sink their investments. They prefer stable, healthy, and growing economies where their investments can grow in leaps and bounds. Pakistan’s net FDI inflows amounted to under one per cent of the GDP even before the flood despite the fact that the enormous room for development of our economy has made it a potentially high-growth market. The reasons for this abysmal showing – in addition to the general state of our economy – include political instability, absence of rule of law, and the absence of both a steady and transparent policy direction and the less-than-perfect investment climate. In any case, Sharif and his team should know well enough what it takes to woo sovereign wealth funds and other institutional investors. Our only contention is that a healthy economy unburdened by macroeconomic imbalances is central to it. The most crucial task at the hands of our government, therefore, is still economic reform and stabilisation. The reprieve that Pakistan’s economic managers may soon have will be no occasion to go on a spending spree to bribe the ballot box ahead of next year’s general election, however sorely tempted Prime Minister Sharif and his PDM allies may be.

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