Pakistan’s covid economy

ISLAMABAD: The congruence of recent economic and political events have injected a fresh dose of optimism across the power corridors of Islamabad as Prime Minister Imran Khan’s government looks to tame the economy.

Events such as the resumption of a loan from the International Monetary Fund (IMF), an upturn in some sectors such as sale of automobiles and a pickup in private consumption have together created the hook for a broader revival.

Politically, the worst threat from the opposition Pakistan Democratic Movement (PDM) appears to be more of a sideshow for now as the movement’s squabbling components deal with internal quarrels. Though short lived riots this week by the followers of firebrand cleric Saad Rizvi, son of Khadim Rizvi came as a shocking reminder of Pakistan remaining an unpredictable country, on balance the element of politics presents little immediate threat to Prime Minister Imran Khan.

In spite of all these optimistic notes, its still premature to conclude that Pakistan’s economy has emerged from the woods. The twin biggest impediments remain the challenge of modest economic growth alongside early signs of a recovery remaining confined to a relatively modest portion of Pakistan’s mainstream population. And for the long haul, reforming key institutions is an absolute must if a recovery no matter how robust has a chance of remaining sustainable.

Estimates from the World Bank for this year’s economic growth are projected to hit about 1.3 per cent or less than Pakistan’s annual population growth. Going forward in the next two years Pakistan’s annual economic growth is expected to edge up to 2.7 per cent, barely above the annual population growth rate.

Unless Pakistan records a robust economic growth trajectory which strongly outpaces population growth, a visible ‘feel good’ factor will remain amiss. Eventually, the proverbial glass promises to remain just half empty with a big ‘maybe’ for its future trajectory, as opposed to half full and edging upwards.

The growth numbers present a sharp challenge for the prime minister as he is under pressure to inject a note of optimism in an otherwise downbeat picture. This is especially the case in view of a widespread popular outcry over the latest economic trends remaining confined to the relatively few.

In a widely cited criticism, the cost of eatables across the board have risen sharply during Prime Minister Khan’s tenure, driven by factors ranging from poor administrative controls to an underperforming agriculture sector that has been neglected chronically. The arrival of Ramazan was preceded by the government’s creation of a network of Ramazan bazaars to provide affordable food stocks to low income families. Yet, this is neither a sustainable solution nor one that will permanently solve the challenge of soaring food prices. There will be a world beyond Ramazan where the all too familiar challenge of food prices will continue to haunt Pakistani consumers.

Reports from across the Punjab once at the centre of expectations for becoming Pakistan’s national food granary, speak volumes over the breakdown of agriculture. Across the province, the rural heartland appears to have been abandoned by the administrative network and left at the whims of private cartels. It is hardly surprising that farmers suffer from what could best be characterised as criminal neglect.

Today across the Punjab, there is no assurance for meeting fundamental needs of farmers such as quality seeds for different crops, quality inputs such as fertilizers or pesticides, and last but not the least the smooth flow of official subsidies. The problem begins right at the grass roots and edges upwards with lower than expected yields of different crops being the natural outcomes. Eventually, with this breakdown it is hardly surprising that the final price of commodities in the market place is set by self serving dons who dominate cartels rather than policy makers.

At the same time, existing industries also deserve support through a mix of policies and facilitation through institutional reforms to further fuel the growth trajectory. Business leaders may well sound like a broken record when they repeatedly lament gaps in Pakistan’s taxation structures working as an impediment.

And yet, these gaps need to be filled if Pakistan seeks to move towards a more sustainable economic framework. For the moment, the prospect of low economic growth in itself has limited the extent to which an agency like the Federal Board of Revenue (FBR) can robustly raise its tax collections. Unless economic growth edges significantly upwards, reforming the tax collection network to make it more result oriented will remain a pipedream.

Eventually, the writing on Pakistan's economic wall is very clear. Early signs of a stabilising economic picture are far too early to suggest a reversal of the downward slide, unless economic growth begins to be revived more robustly.