Are future investments doomed as political turmoil deepens?

As a PML-N-led coalition hobbles towards forming a government following controversial elections, the next chapter in Pakistan’s sorry economic outlook is already looking tainted.

The race to seek badly choked investments to revive Pakistan’s starved economy will likely remain futile unless backed by political clarity in tandem with the pursuit of long overdue reforms.

An increasingly polarized political atmosphere created by deep divisions over the conduct of elections and the PTI’s subsequent planned protests has already unleashed a powerful deterrent to any would-be investor.

To make matters worse, the danger of a possible deadlock surrounding the next IMF loan, should former finance minister Ishaq Dar of the PML-N return to his old job, does not help.

Dar is still remembered for his failure to secure the last IMF loan that eventually forced the prime minister at the time, Shehbaz Sharif, to urgently reach out to the managing director of the IMF to rescue Pakistan from a dangerous slide towards default. The former finance minister’s performance left significant gaps that the next ruling structure must revisit before handing him the prized job.

Upon assuming charge under the last PDM government, Dar promised to oversee a significant appreciation of the rupee during a weak economy – a contradiction that just did not hold up to economic logic.

Besides, he famously also claimed, ‘I know how to deal with the IMF’ and ‘I have dealt with them before’, pouring scorn upon his critics amid a raging economic crisis. His choice to publicly snub the critical global lender effectively spoilt Pakistan’s case.

Reportedly, Dar’s manner and words only widened the gulf between Islamabad’s negotiating team and the IMF staff as they gathered to chart the course for Pakistan’s exit from unprecedented financial distress.

In brief, the Dar versus IMF episode under his previous tenure was akin to a borrower right on the brink, marching up to a bank manager and demanding a loan on the borrower’s terms. In reality, the world is a radically different place.

In policy terms, the next government will be immediately compelled to focus on two equally vital fronts: one, reviving the engine of growth to return Pakistan to its once-achieved 5-6 per cent annual growth target; and two, urgently working towards widening the tax net whose present state has turned the country into the world’s laughing stock on matters of reversing tax evasion. Attaining each of these objectives will come with a heavy political cost.

The revival of economic growth will best flow in the short term from a forceful emphasis on lifting productivity in the agricultural sector.

For long, Pakistan has ignored its farm incomes, consequently unleashing a range of unwelcome trends from lower economic growth to increasing food insecurity.

Other sectors such as industries and elements of the new economy, notably information technology, must also receive focus under a fresh pursuit of economic revival leading off from agriculture.

At the same time, filling the many holes in Pakistan’s untaxed economy remains central to the country’s future. Unless Pakistan can tightly curb the widespread incidence of blatant tax evasion, the country runs the risk of increasingly becoming pauperized.

In a recurring trend year after year, Pakistan does not earn enough to afford its expenditures. Consequently, excessive foreign and domestic borrowing every year just to remain afloat has become an increasing recipe for disaster.

The growing gap between Pakistan’s ability to pay for its needs and the nation’s resources has exposed the country to increasing risks. Internally, Pakistan’s capacity to meet the needs of its burgeoning population has shrunk over time, with sectors such as state-provided education and healthcare effectively shrinking year after year.

And it is hardly surprising to note the potentially alarming increase in crimes across Pakistan, in parallel with an equally alarming number of unemployed and uneducated youth all around.

Attending to these critical areas – growth, delivery of basic needs and widening the tax net – are not only central to Pakistan’s national stability but lifting the country’s performance in these areas will be central to any would-be investor looking more seriously at Pakistan as a promising destination.

For the foreseeable future, halting the downward political slide followed by badly needed economic reforms must precede the hope for a surge in investments.