By Zamir Awan for the Saker Blog
Official data released by the Government of Pakistan is encouraging very much. It shows an increase in foreign remittances, an increase in agri-produce, especially wheat, which is a staple food in Pakistan, and the GDP growth is projected at 3.9 percent, etc. All economic indicators seem satisfactory. If the data is accurate, we must congratulate the government and rank high achiever under COVID-19 era, whereas the global economy is in severe crisis.
However, public opinion is much different, and one can witness it when going to markets. The consumer products have a sharp rise in most commodities, especially the food and eatables prices have gone up. The items of daily use are also getting higher prices. Whereas the salaries are stagnant, there was no increase in wages since the PTI government came into power. Even the regular routine increments are halted. In the private sector, due to lockdowns, economic activities are also facing restrictions. There might be very few exceptions, but most people in Pakistan face low income or no increase in revenue. With limited and stagnant pay, meeting the sharp increase in inflation is not an easy task. People are tense and nervous.
The job market is almost halted; there are no new jobs in the Government sector, and the private sector is also not hiring because of limited business activities under COVID-19. However, the PTI government has made promises to create enormous new jobs but failed to meet its commitments. The creation of employment is directly related to GDP growth. With a population growth of 2 percent approximately, Pakistan can not afford new jobs with the meager GDP. However, Pakistani Universities are producing almost one and half million graduates every year, looking for jobs. The situation is rather vulnerable.
Internal and external debt is increasing, putting the nation in a much awkward situation. However, the exchange rate is stable for quite some time, which is appreciated.
Whatsoever is the official version, but the economic challenges are enormous multi-dimensional, including slower economic growth, rising unemployment, and poverty, massive fiscal deficit, growing public and external debts. However, these problems were inherited from previous few Governments like PP-Government from 2008-2013 and MPL-N Government from 2013-2018. But the current Government of PTI has not only failed to rectify but has aggregated to some extent.
PTI Government failed to improve the economic problems faced by the nation due to the incompetency of the economic team. The Finance Minister has been kept on changing on and off, which has damaged the political goodwill of PTI and may have lost public popularity already.
IMF has also played its role in worsening the situation. As a matter of fact, despite high claims by IMF, but failed all over the world to revive the economy globally. Most of the nation has suffered a bitter experience with IMF. Pakistan is no exception and believes that IMF has aggregated the problems instead of solving them.
Pakistan is a country blessed with abundant natural resources, mining and minerals are rich, and agriculture is one of our strengths. The population is around 220 million, with 70% of the population young under the age of 40. The huge, dynamic, diligent workforce is considered one of our strengths. A nuclear state, yet, so miserable economy, is beyond understanding. I believe it is mismanagement only; the real potential of Pakistan has not been exploited yet.
Pakistan has economists of international repute, trained by Nobel Laurents, like Dr. Ashfaq Hassan Khan. He has given a few recommendations to the Government of Pakistan recently published in the Business recorder:-
The IMF program had got suspended in Pakistan after the onslaught of Coronavirus in late February 2020. With the suspension of the IMF program came the suspension of hara-kiri attached with the program in raising electricity and gas prices, interest rate, and devaluation of the rupee. The interest rate was brought down from 13.25 percent to 7.0 percent in a few months; the exchange rate exhibited a modicum of stability and appreciated after the suspension of the IMF program; gas and electricity tariffs remained unchanged during the suspension. Such a suspension of the IMF program on account of Covid-19 brought tremendous positivity to Pakistan’s economy. It boosted the private sector’s confidence as they knew that utilities’ prices would remain unchanged, interest rates started declining. The government came forward to support businesses/industries and the poor segments of the country lavishly.
All these measures restored the confidence of the market and the private sector; the air of uncertainty was removed. The private sector moved forward, the credit off-take started rising, industrial activity was on the move, exports began gaining momentum, and the overall economy gained traction. All these were happening because of the suspension of the IMF program.
At the back of these developments, Pakistan has witnessed a surge in Covid-19 cases for the last two months. Business activities are being affected. The first thing that the government can do is to request the IMF for further suspension of the IMF program for a year and take this as an opportunity to revive the economy. Alternatively, Pakistan should renegotiate with the IMF and insist that there will be no more hike in the tariffs of electricity and gas, and the tax target for the FBR will be based on the ground realities of the economy. Pakistan should concentrate on wide-ranging reforms in the power sector (raising electricity prices is no reform; it is equivalent to maintain the status quo), tax system and tax administration reform, and reform in agriculture and industries. Reforms in the State Bank of Pakistan (SBP) law in the name of giving more autonomy as proposed by the IMF is like creating a state within the state, and therefore, must not be accepted. Unfortunately, IMF has been used to coerce other nations, and Pakistan is one such victim.
Secondly, the government must hold the hands of businesses at all levels—small, medium, and large. It is not the time to increase the cost of doing business by raising utility prices, interest rates and devaluing the currency. Furthermore, the SBP must consider reducing the policy rate to 5 percent from the current level of 7.0 percent in two/three monetary policy meetings, that is, by December 2021. It is abundantly clear that by raising the discount rate, we cannot reduce inflation in Pakistan.
Thirdly, agriculture has remained neglected by successive governments for nearly 13 years. Pakistan used to produce cotton in the range of 13-14 million bales until 2014-15. The production of cotton has nosedived to 6-7 million bales now. What went wrong in cotton production? The government must find the answer and take necessary corrective measures during the next fiscal year (2021-22).
Fourthly, wheat production in Pakistan had stagnated at 25 million tons from 2010-11 until this year (according to the government, the country has witnessed a record production of 27.3 million tons this year). Still, its population has been growing each year. Resultantly, the per capita availability of wheat per annum has declined from 145 kg to 120kg in 2019-20. The country’s wheat production has failed to maintain the pace of its population growth rate. Pakistan is fast heading towards acquiring a permanent wheat importing country and accordingly creating a food security issue for itself. Pakistan has entered into the second phase of the China-Pakistan Economic Corridor (CPEC), in which agriculture is a priority area. Pakistan must learn to enhance wheat and cotton production from China under the CPEC.
Fifthly, the small and medium enterprises (SMEs), construction, tourism, and IT sectors have strong potential to revive the economy and create enormous job opportunities because all these sectors are highly labor-intensive with high employment elasticity. These sectors are severely credit-constrained. These sectors should be provided credit directly through banking channels or the well-reputed NGOs. The government, on its part, must improve its physical infrastructure, for which budgetary allocation must be ensured.
Sixthly, the livestock and dairy sector accounts for 60.5 percent of agriculture and contributes 11.7 percent to GDP. This sector is almost equal to the large-scale manufacturing sector. Pakistan produces nearly 62 million tons of milk in a year. More than 8 million rural population derive their livelihoods from this sector. It is a highly labor-intensive sector and has enormous potential for creating jobs. The road to poverty alleviation in the rural area passes through the livestock and dairy sector, but it has remained neglected in Pakistan. The government may involve the private sector in the development of this sector to produce milk and dairy products to meet growing domestic and foreign demand.
Seventhly, in the second phase of the CPEC, besides agriculture, industrialization through the Special Economic Zones (SEZs) is yet another priority area where progress is much desired. The government must use CPEC as a vehicle for reviving economic activity to achieve 6 to 7 percent growth in the next four to five years. Let us resolve that during the fiscal year 2021-22, at least one SEZ will become functional.
Eighthly, Karachi being the growth and revenue engine of Pakistan, will play a pivotal role in reviving economic activity in the country and sustaining 5-7 percent growth on a sustained basis. “Give me peace and stability in Karachi, and I will give you the revenue,” this is a historic quote of a former Chairman of the FBR to a former Prime Minister of Pakistan in the mid-1990s. Peace and stability in Karachi and improved infrastructure and cleanliness of the city will go a long way in sustaining higher economic growth. The political situation in Karachi must be handled with political foresight inclusiveness, equal opportunities, and local government empowerment.
Summing UP: To revive economic activity and to achieve a growth rate of 5-6 or even 7 percent in the next four to five years on a sustained basis, Pakistan needs to do the following: i) either suspend the IMF program for a year or renegotiate the cruelest program ever given to Pakistan; ii) no more hike in utility prices (gas and electricity) there is a need to reduce the price of electricity as Pakistan has excess capacity; iii) use both fiscal and monetary policy to revive economic activity; iv) reduce the discount rate or policy rate to 5 percent in the next 2/3 monetary policy meetings; v) primary emphasis be given to agriculture and seeking Chinese assistance under the second phase of the CPEC; vii) SMEs, livestock and dairy sector, construction, tourism, and IT sectors should form the priority areas along with agriculture; viii) undertake wide-ranging reforms in agriculture, industry, energy, taxation, and governance; and ix) peace and stability and better infrastructure in Karachi are vital for economic recovery.
Author: Prof. Engr. Zamir Ahmed Awan, Sinologist (ex-Diplomat), Editor, Analyst, Non-Resident Fellow of CCG (Center for China and Globalization), National University of Sciences and Technology (NUST), Islamabad, Pakistan. (E-mail: [email protected]).