A new year to fix the economy

Hundreds of thousands of words have been written about the economy, and how to fix it over the last many years, but not much is done, and the economy remains stuck in a low-growth trap.

Being an eternal optimist, one still feels that there is hope, and with the right interventions, the economy can be put back on track. The more such interventions are delayed, the more painful it will be to unwound the mess that is created by kicking the can to the future. Interventions can be split into policy decisions that can catalyze the economy in the short-term, and those policy decisions that pay substantial dividends in the long term. A mix of both policies is required to put the country back on a track of sustainable growth – without which we will be trapping almost a quarter of a billion people into a low-growth loop.

Pakistan has one of the highest population growth rates in the world, and that means the need to ensure adequate nutrition for an ever-expanding population base. Over the last many years, this has been done through imports, but that may not be sustainable – as the same imports are funded by borrowed foreign currency, in the absence of which, the local currency depreciates, resulting in spiraling inflation. As dependence on imported nutrition increases, the vulnerability to external shocks also increases.

It should not come as a surprise that, despite fixing prices for wheat for the last many years, there continues to be a shortage every year, while the price of local wheat either often tracks or is higher than the international market – despite being almost self-sufficient in wheat. Pricing distortions eventually lead to smuggling, eventually leading to shortages in the market. More importantly, such pricing distortions also discourages any investment in productivity, which keeps yields at levels which are much lower than even the region.

An agricultural policy that focuses on nutrition, and how to feed the population through indigenous resources remains ever critical for sustenance. The country cannot have a productive labor force in the future, if almost 40 per cent of its children under five are either malnourished or stunted. There is a nutrition emergency, and any delays in fixing the same through market-oriented interventions will result in significant costs over the long-term that can post an existential threat to the country at large.

Once children can be fed, and food prices can be brought down through increases in productivity, and improvement in supply chains, rather than administrative measures that have always failed, it is then time to educate children. There are more than 20 million children that are out of school in the country. The number of out-of-school children continues to increase every year. Even those children who are enrolled in school may not also be getting the base-level quality of education that is essential. Provinces continue to be cash-strapped while grappling to fund education through provincial budgets. Despite increasing budgetary allocation to education, the outcome has not improved.

There is a dire need to focus more on the quality, rather than throwing money at the problem. The latter has led to the creation of infrastructure that is underutilized, while human capital in terms of teachers remains awfully undertrained, incapable of training the next generation for future. Throwing more money at the problem may not solve this problem – and that will require a more holistic approach towards teacher training, and curriculum development that is more focused on the future rather than a curriculum that is stuck in the past.

The nutrition and education problem can be solved together by enabling availability of nutrition-dense meals at schools across the country, which also acts as an incentive to increase enrollments and attendance in schools. The same model has been successfully utilized by many countries with stellar results – however, this does require substantial coordination efforts and a long-term vision, which currently doesn’t exist at either the federal, or provincial level.

People need jobs, and the job creation rate has been abysmally low in the last ten years, largely due to actual growth levels being lower than growth potential. Quality jobs and associated training can be generated through an industrialization process, and that can only be done if energy is affordable. A country cannot industrialize, or create jobs for its people if energy is not affordable, and its consistent supply is not certain. The country needs an export-oriented industrialization policy, and before that can happen, it needs a coherent energy policy that allocates scarce resources on the basis of economic value-add, rather than arbitrary bureaucratic decisions.

The country is increasingly reliant on imported energy, and that energy is predominantly used for transportation. The country needs a transportation emergency, where there is a massive roll-out of public transit across the country, to discourage private transport, and encourage public transportation, while also saving precious fuel, and foreign currency in the process. Instead of developing more roads in urban areas, the same capital can be reallocated towards public transportation infrastructure. This does not only enable more efficient use of energy, but also enables better mobility for people, resulting in more economic activity, and job generation.

The current process of electricity and gas pricing needs to be decoupled from interference of the state. It is estimated that almost 40 per cent of the current electricity price as paid by households and businesses alike can be attributed to either taxes or state inefficiency. The single buyer model in which the state is the only buyer of electricity needs to be transitioned towards a multi-buyer and multi-seller model, where efficiency is awarded, rather than penalized. Similarly, the state should stop relying on electricity consumption as a source of tax revenue – as electricity consumption per capita has remained flat for the last five years. More price increases are only going to be detrimental for economic growth. If the government wants any kind of sustainable economic growth, it needs to solve the energy puzzle first – without which, it is impossible to get on any path of sustainable economic growth.

Policies over the years have consistently failed or have been hijacked by interest groups that can rarely compete in a global market, and only exist because of state largesse. Maybe it is time to decide whether the state exists for a quarter of a billion people, or to serve the interests of a few dozen interest groups that solely exist because of the state’s inefficiency and largesse. The answer ought to be obvious, but the will to do the same has never really existed. One can only hope that some will to change the status quo may exist in the next year – or the year after.

The writer is an independent macroeconomist.