The recurring message is that Pakistan’s economy is on a very fragile footing and the country needs to get its financial house in order. Barring a few growth blips and positive news, Pakistan’s economic story has been mostly about unsustainable government finances, stagnating growth, steadily deteriorating standard of living and high inflation, widening fiscal and trade deficits, and the free fall of the rupee. The seriously flawed economic policies pursued for decades have ensured state control of the vital organs of the economy, the inflationary printing of money, and the absence of real economic growth and productivity. We can factor in the endemic corruption and domestic terrorism, which scares away business and investment and the heavy dependence on loans and financing, which undermines national sovereignty. In the face of declining economic prospects, various Pakistani governments and economic managers have become quite adept at playing modern alchemists, who invent something out of nothing and parlay non-existent achievements.
Pakistan has also had to contend with major structural issues that have seriously impacted the economy. These include the social imbalances so deeply entrenched in politics and in the state’s decision-making processes. These imbalances have made it difficult to make decisions for the common benefit of the whole population. Unlike other growing countries, Pakistan’s economic policies have been generally geared to benefit the privileged elite. The consequences of this are self-evident; few of the benefits of periodic growth spurts and the huge infusion of foreign aid have trickled down to the vast majority of citizens. We can contrast this to other global economic success stories, which have pulled tens of millions of citizens out of poverty into the ranks of the middle class. Without reform to unite Pakistan’s fractious society on a fair and equitable basis, no amount of macro or micro economic tinkering are likely to address chronic woes and failures.
It is difficult to be optimistic about the Pakistan economy’s prospects, given the grim outlook for developing economies overall. In its Global Economic Outlook 2013-2014 report, the UN said: “For years after the eruption of the global financial crisis, the world economy is still struggling to recover. During 2012, global economic growth was weakened further. A growing number of developed economies have fallen into double-dip recession. Those in severe sovereign debt distress moved even deeper into recession, caught in the downward spiraling dynamic from high unemployment, weak aggregate demand compounded by fiscal austerity, high public debt burdens, and financial sector fragility. Growth in major developing countries and economies in transition has also decelerated notably, reflecting external vulnerabilities and domestic challenges. Most low-income countries have held up relatively well so far, but now face
intensified adverse spillover effects from the slowdown in both developed and major middle-income countries. The prospects for the next two years continue to be challenging, fraught with major uncertainties and risks slanted towards the downside.”
The other uncertainty hanging over the Pakistan economy is the threat of political instability arising from the elections and possible governmental transition this year. Any political turmoil will be disruptive of the economy and add to the country’s financial stress.
The generally prescribed economic medicine is to cut spending, raise revenues, reduce deficits, encourage investment and spur growth in a manner that protects the people. The other aspect is that economic policies have to be based on the interests of the country and above the interests of any particular party or institution. For example, it will be highly improbable if not impossible for the Pakistani economy to improve its present anaemic growth rate, unless the ‘sacred cows’ of untenable military spending and subsidies are addressed. Otherwise, the low rates of growth will compound the steadily deteriorating standard of living, which coupled with the vagaries of nature like floods and earthquakes, create a vicious cycle that spins faster and faster out of control.
This is no time for complacency and hard decisions have to be made to cut defence spending, reduce wasteful non-defence expenditures and raise tax revenues in a manner that jump starts the economy and creates jobs. The initial goal should be to stabilise public finances, start to promote economic growth, and be able to respond to economic or political shocks. These are not just things that the country should do; they are things that must be done, politically unpalatable as they may be. These defensive steps are still a far cry from any fanciful plans to grow the economy bringing demonstrable benefits to citizens through job growth and capital formation, trends that are seen in more buoyant and stable economies.