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Wednesday May 22, 2024

Staying alive

By Dr Khaqan Hassan Najeeb
December 11, 2022

It is hard to envisage a worthwhile developmental effort without a country developing its own strategies, executing them, taking wrong turns and mending course when required. Sadly, such an effort largely eludes Pakistan – with policy work predominantly outsourced. The country needs to overcome this dependency syndrome, think on its own and devise strategies for endogenous growth.

There is no perfect strategy for tackling the immense structural challenges that beset the economy. However, a systemic perspective on interconnected challenges can be put forward. Here I provide a toolkit or repertoire in the form of a ten-point charter for staying alive. Actors can prioritize differing pieces for constructing lines of action to come out of a perpetual crisis mode.

The underlying theme in the ten-point charter for Pakistan is the departure from policies of short-termism. However, considering the urgency of meeting our external obligations for FY2023, in the short run, the answer is clear. Pakistan needs to unequivocally signal the country’s ability to meet its external gross financing requirements for FY23.

Pakistan requires about $20.5 billion for amortization, $0.985 billion to be returned to the IMF and nearly $10 billion to finance its current account deficit (CAD) in FY23. A credible plan to finance the $32 billion with at least a quarterly time frame should be the first order of business. This can calm the jittery markets (bond, foreign exchange and credit default swap markets) and limit the chatter about a perceived default risk. The country has been unable to do this so far.

It is suggested that even in managing the gross financing needs, authorities eventually shun short-termism and think more into the future. Pakistan’s balance of payments remains highly precarious in the coming three years. Serious work must begin on sustainability of balance of payments with a medium-term time horizon. From FY24-26 Pakistan needs about $78.7 billion in amortization and monies owed to the IMF, and an estimated $32 billion to finance a modest CAD. A plan for covering this mammoth amount of nearly $110 billion is our second point in the charter. Financing $110 billion involves lengthening of the maturity profile of public debt, ensuring roll overs for longer duration (KSA, China, UAE) and debt rescheduling especially with China and other bi-laterals. This work can create predictability.

The next eight points of the charter are premised on two thoughts. One, if living standards are to rise in Pakistan, we need to produce more with the same resources; and two, Pakistan must produce things it can sell to the world. Productivity is key in accounting for differences in standards of living across countries and time.

Agriculture, livestock, forestry and fishing are among Pakistan’s least sophisticated sectors, with dismal productivity, low value add compared to global competitors and limited access to export markets. This has to change and thus forms the third element of the charter. A key impediment to the functioning of competitive markets in Pakistan is the large and inflating state footprint manifested in inefficient state-owned enterprises (SOEs), unsustainable expenditures and market interventions, and growth retarding regulations.

The fourth point in our charter is Pakistan undertaking a sizable divestment effort; outright sale, management contracts, global depository receipts, initial public offerings and secondary public offerings. Clear results on offloading of two RLNG plants, Pakistan Steel Mills, Nandipur power plant; Guddu power plant; two DISCOS; and one Sui company should be the minimum expectation within the term of the next political government. PIA, with an accumulated net loss for the year of Rs67 billion, sweeps the earth under our feet. We must snap out of the fallacy of restructuring and give its management control to a private enterprise.

It’s hardly a bold hypothesis that the economy’s productivity performance is unbearably weak compared to other countries as we haven’t gone low enough in terms of regulation. Seventy-five years on and the country is still struggling to allow economic agents to work freely. Authorities have to realize that the private sector is ultimately the source of productivity. One is well aware of the ongoing Pakistan Regulatory Modernization Initiative with less than desired results. Going back to the drawing board has become essential for an aggressive plan for regulatory easing – fifth pillar of the charter.

Sixth element: it is heartbreaking that line losses and poor collection accounted for a colossal Rs343 billion in FY22. The loss is more than the size of our income support programme. Disrupting Pakistan’s energy sector has become imperative to keep the economy staying alive. A nimble and sharp regulator, privatized operations and a multi-buyer multi-seller energy market need a herculean effort. We remain far from such a dream disruption.

Mining the earth is a strategy which can help us find innumerable indigenous resources. It cannot be acceptable that we sleep on a treasure of copper, gold and coal. Any sensible government has to make this an important part of its economic agenda which is the seventh proposal in the charter.

Regression of Pakistan’s economic policymaking appears to have become a norm. Policy has to move beyond old and bad responses of low taxation of real estate, amnesties, subsidies and distortions like price setting. Levelling the playing field for innovation and inclusiveness needs some rationalistic rethink and forms the eighth component of the charter

Pakistan has become a country with exorbitant budget deficits due to a dismally low tax-to-GDP ratio hovering around ten per cent and burgeoning expenditures on pensions and markup. Overcoming a large tax gap and expenditure reform are a no brainer and thus become the ninth element of the charter.

Last on the charter but the most crucial is our absolute inability to tackle the population explosion. Policymakers can simply not be oblivious to the fact that the country adds five million people every year with a frightening population growth rate of 2.4 per cent per annum. Pakistanis must do away with this irresponsible attitude. At this rate we can never by any stretch of imagination provide for our people. A strategy overcoming religious , political shyness and society’s ignorance, needs to see the day of light.

In sum, the ten-point charter for staying alive offers patronage to productivity, efficiency and incentives beyond the ones focused on elite. Many commentators view our age as twilight of ideas which has lifted billions from poverty. Our baseline case is that learning from such an experience, Pakistan can put together some of the above 10 proposals in next three years. Having seen the degradation in government effectiveness, one remains conscious that devising the above agenda with benchmarks would be an arduous task.

The writer is former adviser, Ministry of Finance. He tweets @KhaqanNajeeb and can be reached at: khaqanhnajeeb@gmail.com