‘Naya’ Pakistan needs a ‘Nayi’ Economy

There is a new word that is feverishly abuzz in the world of desi politics-- ‘naya’. India’s Prime Minister Narendra Modi has vowed to establish a #NewIndia, while Pakistan’s Imran Khan daily repeats his desire for a ‘naya’ Pakistan modelled after Prophet Mohammed’s Madina. Economically, however, both countries seem to be sliding farther and farther away from their purported goals. Pakistan, more specifically, is in such deep economic trouble that climbing out seems harder by the day. 

The overall economic scenario

Pakistan is going through what macroeconomists would describe as a ‘textbook emerging markets crisis’. All key economic indicators point towards a slowing economy with cyclical factors complicating unacknowledged yet deep structural issues. Inflation has been in the double-digits for the last few months and has already crossed the government’s estimate of 11% for this year. An unsustainable investment boom caused by external debt-financed China Pakistan Economic Corridor (CPEC) has come to an end and projects are slowing down. GDP growth rate has already halved from last year’s 6.6% to this year’s 3.3%. Government and business revenues are shrinking, while the tax burden is rising for companies as well as consumers. To make matters worse, the country’s consumption-driven economy is witnessing severe austerity measures under the conditional $6 billion IMF bailout. Unemployment, particularly amongst the youth, is on the rise. Effectively, purchasing power of consumers is collapsing as jobs are shrinking, wages remain stagnant or even decline, and the Rupee continues to slide against the dollar. Add to this chaos National Accountability Bureau’s (NAB) anti-graft crusades and a dismal picture emerges. 

Current remedial measures

Yet, at least some Pakistanis have reasons to be hopeful. Earlier last week, top Pakistani businessmen met with Gen Bajwa, the Pakistani Army chief, and the meeting is supposed to have gone quite well. If Federal Minister for Economic Affairs Hammad Azhar is to be believed, the business felt quite ‘upbeat’ after the meeting. During the meeting, amongst several issues, the businessmen also raised flags regarding the functioning of NAB. This prompted an assurance from the NAB chairman that businessmen would not be harassed for investigation of tax evasion cases, except in matters referred to it by banks. This development alone seemed to have cheered the otherwise bearish markets and directly contributed towards a 3% upsurge in KSE-100 index over the week. 

Nonetheless, concerns about predictability of policy remain a fundamental challenge to Pakistan’s growth, as highlighted by Federal Board of Revenue (FBR) Chairman Syed Shabbar Zaidi on Saturday. Chairman Zaidi further added that “in the last 20 years, around $6 billion had been siphoned off annually” owing to lack of clear policy positions. Concerns are also emerging ahead of this week ‘s FATF review meeting in Paris to determine whether Pakistan should be put on the blacklist for money laundering and terror financing. If the country is indeed moved on to the blacklist, international financial institutions could be asked to sever their ties from the country, furthering the besieged economy’s troubles.

In the wake of all the terrible news, the government has decided to bolster a whole slew of welfare schemes. Just yesterday, the Asian Development Bank (ADB) announced that it had approved a $200 million loan as additional financing to support the Benazir Income Support Programme (BISP). Prime Minister Khan has also vowed to amend Article 38(D) of the Constitution to make the provision of food, shelter, clothing, education and health to all citizens a “fundamental right.” Nonetheless, he did not add how a right on the books will change anything on the ground. PM Khan also launched several soup kitchens across the country under the ‘Ehsas’ program to eradicate hunger. It is unclear, nonetheless, how 112 odd langars will mitigate the impact of 15% food inflation for millions of poor Pakistanis. 

What’s ahead?

The road ahead seems bleak for Pakistan until the country rewires its economy and polity radically. To begin with, Paksitani businessmen need to feel ‘upbeat’ after meeting the country’s PM, not its Army Chief. This further means that the Army’s lion-share in the budget (typically ~20%) must be drastically reduced and moved towards expenditure on developmental activities. At the same time, effective tax collection practices need to be institutionalized and the tax base of the country needs to be expanded beyond its current 1%. Tax evasion and corrupt practices of the elite, both civilian and military, need to be reigned in. Most importantly, selective “justice” in matters of graft and financial transparency needs to be done away with to establish a rules-based polity. Coupled with this, excessive reliance on external debt needs to be checked. 

Finally, terror linkages with Pakistan’s neighbors need to be refashioned as trade linkages. It is the welfare of over 200 million Pakistanis alone that must drive the state, not hatred or paranoia about India or Afghanistan. 

Photo credit: pid.gov.pk