Changing Finance Minister Will Do Little To Rescue Pakistan's Sinking Economy

Changing Finance Minister Will Do Little To Rescue Pakistan's Sinking Economy
Just as the prime minister Imran Khan changed his Finance Minister and appointed Hammad Azhar, the World Bank issued a grim state of economy report.

The World Bank Report paints dismal picture of Pakistan's economy. In addition to the alarming documentation on unemployment and poverty, the report predicts that Pakistan's GDP would increase merely 1.3% during 2021. Furthermore, the debt-to-GDP ratio – already a whopping 94% to size of economy – is projected to worsen further. The report also mentions impact of third wave of Coronavirus which is scaling down businesses.

In a discussion with Hassan Khawar in Awaam ki Baat, Raza Rumi talks about WB report, key issues in economy and trade with India.

Hassan notes that there is no magic bullet to fix the economy. The answer to the question whether removing a technocrat would make any difference is simple: it won't. Shaukat Tareen, who is being tipped as the future adviser, like his predecessor would follow the IMF conditions so that Pakistan could get its next installment. A fundamental revamping of economy through 'hard pills' is needed, Hasaan Khawar adds.

For political economy of Pakistan, the lack of leadership and continuity of policies remains a big challenge. Raza Rumi notes that the leadership that can manage the finance ministry, ECC, agriculture ministry, Board of Investment and energy ministry is needed. These different bodies make their own policies and there seems to be lack of purposeful coordination between them; from oil pricing to trade decisions, let alone a unified economic policy. Whether the change in leadership of finance or any other body would do any good for the economy is a question to be asked. The mere changing of faces shows that the govt has not formulated a consensus on the way forward for economy. The mainstream media also does not make long term economic growth a topic of discussion.

Pakistan's economy is like a patient on stretcher

IMF provides emergency service and the patient is able to breathe for the time being. However, structural adjustment programmes are not implemented and dropped half-way. Because of this, the economy has failed to show any signs of recovery, Hassan argues. He adds that there is no solution without "hard pills" as prescribed by agencies like IMF. These hard pills can range from reducing non-development budget, increasing oil or/and gas prices and taxes. Hassan says that we are looking for a "miracle worker" in the form of a minister. However, the official would merely forward suggestions to PM who would ultimately decide. Moreover, Hammad Azhar unlike his predecessor, is elected and thus he would have to account for political sensitivities in his decisions which could constrain his discretionary powers. Now, that can be both productive and counter productive. With tug of war between ECC and cabinet, Hammad would be facing many hurdles.

There is no fix-all "magical pill"

The government, sooner or later, would have to make hard 'unpopular' decisions to reduce expenditures and increase revenues, Hasaan Khawar argues.

Raza Rumi says that investment, mainly domestic, is a major driver for economic growth but it is often ignored in Pakistan where mere construction and one or two other areas show any growth.
Raza Rumi adds that Pakistan needs about 8% annual growth to achieve full employment for its youth bulge.

But the lack of predictability and prevailing uncertainty discourages prospective investors, argues Hassan. Investors want to be sure that who is making the decisions, that the incumbent government would complete its tenure. Thus stability is a requisite for sustainable investment. Secondly, Hassan says, contract enforcement – something hardly ever given attention – is required to boost investor confidence. Thirdly, things like ease of doing business, access to finance etc. are also important. Not doing enough on the former two fronts and jumping to the third appears to be the government practice that would yield no results.

The government gives carrot-like incentives to one or two sectors like construction or textiles and for the time being we see some improvements. The key problem is that no long term or permanent solutions are sought which cannot be possible without removing bottlenecks that prevent growth and without ensuring stability.

Recently, Hammad Azhar hinted at importing cotton and sugar from India. The proposal has been politicized and turned down. Raza Rumi mentions that there has been sufficient research on the impact of trade with India. That decision should be purely on economic basis and not be politicized. Buying a product from a country where it is relatively cheaper like cotton yarn in our case makes economic common sense. The ECC made its decision on commercial basis so that these commodities be available in the local market at lower prices. Secondly, there is a strong economic argument in favour of trade with India as Raza Rumi tells: trade with India would translate into 1% annual growth in Pakistan's GDP. The potential therein should be tapped.

Needless to say, these decisions should be made after debate and thorough discussion rather than hastily or out of dictation from any quarter.