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January 13, 2019

Good news, bad news


January 13, 2019

The state of the economy in Pakistan is yet again under discussion, and many are engaged in heated debates regarding different aspects of the economy. However, most of this discussion is producing more smoke than fire. To extract some facts from behind that smokescreen, let us try to recap five good and five bad pieces of news about Pakistan’s economy and economic management by the PTI during the last five months.

Good news first: contrary to the common perception, the current government does have a strategy to overhaul Pakistan’s economy. It is trying to achieve some short-term, some medium-term, and certain long-term objectives. The short-term objective is to get breathing space and policy cushion through managing the twin deficit (fiscal and balance of payments) for this fiscal year. The medium-term objective is to address the structural issues haunting Pakistan’s economy. And the long-term objective is to put Pakistan’s economy on a growth trajectory.

More good news is that the strategy has successfully worked in achieving the government’s short-term objective – ie the immediate danger of default is over. The economic diplomacy of PM Khan remained successful in securing economic support for managing balance of payments for the current fiscal year.

Recent history tells us that borrowing from friendly countries is not an easy task. In 2008, the then newly elected government approached all friendly states for economic support. Many of them made public pledges in the ‘Friends of Democratic Pakistan Forum’ to economically support the revival of democracy in Pakistan. However, those pledges never materialised and the PPP government had to go to the IMF.

In 2013 too, PML-N government could only manage $1.5 billion from Saudi Arabia and had to go to the IMF. However, this time, PTI government has managed around $8 billion in balance of payments support and almost an equal amount of credit facility for oil and gas (more than half of our oil/gas import bill).

The third good news is that the government is mindful of economic problems and has already adjusted revenue and expenditures to control the fiscal deficit for the financial year. Another round of adjustment is on the cards through further amendments in the finance bills (the second mini budget).

The fourth good news is that the government is not shying away from taking tough decisions to address the chronic issues facing Pakistan’s economy. Someone had to do it, even at the cost of one’s political capital. The apparently unpopular measures will help the economy in the medium-to-long run (the medium-term objective of the government). The energy circular debt is being managed through passing on the real cost of generation to the consumers (lifeline consumers are still being subsidised). Imports are being discouraged through regulatory duties on non-essential items and through depreciation of the overvalued rupee against the dollar, whereas the tax net is being broadened through tightening the noose against ‘taxable’ non-taxpayers.

The fifth piece of good news is that the government’s economic diplomacy to attract investment from friendly countries in sectors that can create jobs, revive local industries and improve balance of trade seems to be working. In the long run, this investment will put Pakistan on a growth trajectory. The Saudis are quite serious about the Petrochemical Complex in Gwadar and are willing to invest around $10 billion. In the recent JCC meeting on the second phase of CPEC, China has agreed on technology transfer, industrial cooperation, and investment in labour-intensive sectors such as agriculture. The UAE is also interested in investing in oil refinery, whereas German car assembler Volkswagen is willing to set up an assembly plant in the country.

The sequence of economic strategy seems workable: managing breathing space, tackling the chronic issues hurting our economy, and attracting investment to create jobs.

However, life is never that rosy. There’s some bad news as well.

The first piece of bad news is that the government has not been able to disseminate and market its economic strategy so far. It has not been very successful in communicating its plans to revive the economy.

The second bad news is that the government does not seem to be able to follow up on the implementation status of its own decisions. Quite a few positive things have been approved in principle – and at the highest level – for boosting exports and improving ease of doing business. However, most of those decisions are not formally announced yet. Invisible internal hurdles are making implementation of those decisions difficult.

The third bad news is that the government is taking too much time in taking crucial (but urgent) decisions. For instance, the market is still uncertain whether we plan to pursue an IMF package within this fiscal year or not. While one appreciates that the government is trying to get a better deal from the IMF, markets cannot wait indefinitely. If the remaining five months of this fiscal year can be managed without the IMF then we should better say it, so that business as usual may resume.

The fourth bad news is that the government does not seem to be in a mood to reduce the political temperature. Chronic issues facing our economy, such as loss-making public-sector enterprises cannot be addressed without taking the opposition parties onboard. For that to happen, the government will have to soften its tone and tenor towards its political opponents. A ‘charter of economy’ cannot be agreed on among major political parties in the current treasury-opposition relations.

The final bad news is that, while the government’s strategy to overhaul the economy is quite convincing and clear, its strategy to achieve human and social development is still not very clear (or not communicated effectively so far).

By the way, literature on human development tells us that GDP growth rate is merely a number if it does not create a conducive environment where “all individuals are enabled to maximise their potential, and to contribute to the evolution of society as a whole”.

The writer heads the Sustainable Development Policy Institute. Twitter: @abidsuleri