The Asian Development Bank’s assessment of Pakistan’s economy in its yearly outlook for Asia should not come as a surprise as the writing had been on the wall for long.
There is an economic slump throughout the world and it has affected South Asia. It is for this reason that despite all fanfare by Narendra Modi’s government, India registered slowest economic growth in past five years.
But global economic slowdown could not be squarely held responsible for the economic slump in these countries. There are several domestic and internal factors responsible for this deceleration of economy in these countries.
Asian Development Outlook 2019 (ADO) predicts Pakistan’s gross domestic product (GDP) to grow at 2.8 percent during current fiscal year as compared to 3.3 percent in the last one. The Asian Development Bank (ADB) in its ADO attributed this low growth rate to a combination of lower investment, policy uncertainty, and economic imbalances.
According to the ADO, rupee depreciation is the single most important factor that accelerated inflation, though it also contribution to a significant reduction in the current account deficit as devaluation made imports expensive forcing people to opt for cheaper Pakistani goods instead of buying costly imported ones.
The slowdown has not only caused a significant increase in inflation but has also resulted in joblessness and unemployment.
The ADO noted that the PTI government has firmed up a “comprehensive programme of fiscal consolidation and monetary tightening to stabilise the economy and address structural weaknesses”.
This is what the International Monetary Fund (IMF) team also stated in its first informal assessment of Pakistan’s economy after the release $6.6 billion bailout package in May. The first formal staff level review is due later next month.
"To restore macroeconomic stability, the government plans to catalyse significant international financial support and promote sustainable and balanced growth under a 3-year economic stabilisation and reform programme with the IMF. Fiscal consolidation under the programme aims to reduce the large public debt, while expanding social spending, establish a flexible exchange rate regime to restore competitiveness, and rebuild official reserves,” the ADO maintained.
If Pakistan’s history of implementing structural reforms is any guide, every government made tall claims and promises to implement them with full force but the implementation phase loses steam within no time in the wake of political pressures. The implementation of structural reforms, like in any Third World country, has been a tough task in Pakistan as such dispensation usually surrenders to political pressures.
Now the big question is whether the government, which has so far enjoyed very cordial relations with the country’s powerful establishment, will be able to able to implement them, weathering all storms?
According to the IMF officials, Prime Minister Imran Khan seems committed to the implementation of these reforms.
The coming weeks and months would be crucial in this regard.
According to independent observers, while having little or rather no choice but to implement the long-ignored reforms, the government needs to take steps to accelerate economic activities in the country.
Though the government has vowed to ensure ease of doing business for private sector in the country, there are concerns that investors are reluctant to put in their money into Pakistan out of fear of alleged high-handedness of the National Accountability Bureau (NAB) as well as tax officials.
Moreover, increased litigation involving world’s major companies in projects like Reko Diq and rental power plants has forced potential investors to steer clear of Pakistan.
The country needs to adopt business-friendly policies and at the same time take concrete measures to ensure pro-investment environment in Pakistan.
While the government is vowing tough measures to bring fiscal discipline in the country, it is also required to attract private investment in the country to create jobs and accelerate economic growth.
So far it seems much of government’s attention is focused on maintaining fiscal discipline as desired by the IMF. However, it will have to generate economic activity by bringing in private investors and taking measures to increase exports too.
At a time when the existing investors are struggling to sustain their businesses, much less planning to expand them, it is difficult to convince the new ones to bring their capital into Pakistan.
Last week, the maker of Toyota vehicles, Indus Motors Company, was reported to have shut down all production for September due to continuing fall in demand after staying idle for a third of August.
According to insiders, heavy taxes, drastic rupee depreciation, as well as a range of other government duties on cars have jacked up production cost and decreased purchasing powers of the customers.
Large scale manufacturing sector has also reportedly shrunk by over three percent over the past eight months.
This slowdown will ultimately result in joblessness which entails many socioeconomic problems.
In view of this worsening situation, the government needs to mull measures to generate economic activity in the country.
Moreover, the NAB and Federal Investigation Agency (FIA) probes have also had caused panic among the businessmen and that’s why the government took notice of this problem at a cabinet meeting a few weeks ago.
The government needs to urgently pay attention to it as rising inflation may cause social unrest thus providing ammunition to its opponents to create political turmoil out of it.
Though the government seems comfortably in saddle and at present faces no threat from the opposition despite Jamiat Ulema-e-Islam-Fazl- (JUI-F) led so-called ‘million march’ towards Islamabad, it may run into problems in future if it fails to properly handle economic issues particularly those having direct impact on public.
The ADB prediction for a low economic growth should serve as a wakeup call for the economic managers of the country who should speed up their efforts to find homegrown solutions to the clear and present challenges.
Time is running out fast for the government and since Prime Minister Khan is leading a political government he needs to concentrate on the pressing problems, weighing down hard on public, especially high inflation, which, if not addressed before long, could lead to mass unrest. Blaming previous governments for all problems won’t work for long.
The performance clock has started ticking for the Pakistan Tehreek-e-Insaf government.
The writer is a senior journalist based in Islamabad