|
Sarah Nizamani Published May 30, 2022
THE word ‘crisis’ may have been overused to describe Pakistan’s economy, but it is an apt term. With only a month of reserves left, the country is crumbling[ٹوٹ پھوٹ کا شکار ہوتی ہوئی] under financial pressure and is looking forward to the IMF again. The Fund may bring temporary relief but will do nothing to improve the chronically[بہت دیر سے موجود] ill economy. The government will make some immediate payments to keep the country from defaulting, but, in the absence of sustainable growth, it will soon be back to knocking on the door of the Fund and friends.
Apart from fleeting moments of relief, Pakistan has been stuck in this loop of misfortune for long. However, many experts are not too alarmed. After all, tales of shrinking productivity and poor exports are not new, nor are those of wasteful subsidies and elite capture. For example, Pakistan provides Rs1.3 trillion in tax subsidies to big businesses and industries, while its share in world goods export is 0.1 per cent compared to India’s 2pc. According to the Economic Intelligence Unit, this will increase to a mere 0.2pc in 2026.
There is consensus[اتفاقِ رائے] that to avoid an existential crisis, Pakistan must improve its economy. The National Security Policy recommends a ‘Fourth Industrial Revolution’ as a policy solution, but fails to explain how this is possible. It forgets that the Fourth Industrial Revolution is based on the knowledge economy — Pakistan stands behind India and Bangladesh, and barely above Afghanistan in education rankings. Less than 60pc can read or write and 75pc of educated people are ‘learning poor’. Pakistanis’ lives are shorter than their peers’[ برابر کے لوگ ، ہم پلہ لوگ] in most neighbouring countries, and ownership of computer devices in households is less than 8pc. Whatever little economic growth the country has achieved has been without much human development improvement. Hence, the growth is short-lived.
Evidence confirms that economic growth occurs when countries are a part of global supply and value chains. But, what defines value changes. For example, Adam Smith in The Wealth of Nations lists some of the most unproductive professions — including that of churchmen, lawyers, musicians, dancers and sportsmen. He would be surprised to know how much money there is in these professions now. For Pakistan to achieve sustained growth, it needs to create value for the goods and services in global demand. There are no easy answers for how this can be achieved, but there are ideas to debate.
For 200 years, economic growth has been linked with manufacturing, but this may no longer be valid. Several reports show that many low-income countries might have missed the boat to developing industry. As pointed out by Ejaz Ghani and Stephen O’Connell, industrialisation needs two main factors to flourish: 1) enhanced availability of electric power; 2) higher capital investment. With power shortages and an inability to attract investment, Pakistan has struggled with both. However, evidence suggests there is still a chance for developing countries to shape their development pathways which lie in the service revolution. In Pakistan, the service sector has contributed more to growth than industry since 1950 and surpassed[آگے نکل جانا] agriculture in 1965. In 2020, it employed 36pc of labour and contributed 54pc to GDP. The level of productivity measured at purchasing power parity is also higher than in industry.
Thanks to technology, the sector is no longer exclusively driven by domestic demand and services are globally tradable. This results in increased exports of trade in services. For example, Pakistani freelancers earned $150 million in FY2019-20 (in the absence of PayPal) and Pakistan was ranked fourth in the freelancers’ market (above India and Bangladesh). This proves that manufacturing is not the only driver of growth, and that the service sector is not only sustainable but also inclusive. If Pakistan can expand and improve its service sector, it may result in faster job creation and higher household spending. This would not mean giving up on industrialisation, but divorcing protectionism in the hope of better returns.
Still, there’s a need to recognise that services are an urban phenomenon and skill-centric, and may not bring prosperity to all in equal measure. To bring rural prosperity, there’s a need for inclusive capitalism to reach farmers, which means access to formal finance, informed policymaking, investment in agro-tech and autonomy in farming decisions. Skipping manufacturing to leapfrog[چھلانگ لگا کر آگے نکل جانا] to services is possible, but this cannot be done without raising farm incomes.
What is suggested here is to end the factory fetish[جنون] and protectionism, keep away from subsidising land, credit and power, empower small farmers, remove growth constraints in agriculture, invest in people, and change the state’s role from regulator/inhibitor[روکنے والا] to enabler/value creator — and to remember that the only failure is the failure to envision a better future.
The writer is a research fellow at IBA, Karachi.
nizsara@gmail.com Twitter:@SarahNizamani
Published in Dawn, May 30th, 2022
Sakib Sherani Published May 8, 2022
“Midway upon the journey of our life I found myself within a forest dark, For the straightforward pathway had been lost.” — Dante
PAKISTANIS find themselves once again in familiar territory – on the cusp [ایک حالت سے دوسری حالت کا درمیانی نقطہ] of yet another economic crisis. While the country has endured frequent balance of payments-induced crises in the past, this one is different. To understand what is different about the current crisis, one needs to revisit the typology [مختلف اقسام میں تقسیم کرنے کا عمل] of economic crises.
While economic crises come in many forms, broadly, they fall into four categories: currency crises, ‘sudden stops’ (related to disruption in external capital inflows or sudden outflows), debt and banking crises. In terms of taxonomy [مختلف اقسام کی درجہ بندی کا مطالعہ], these types are generally referred to as ‘financial crises’. The triggers for these crises are either exogenous [بیرونی] shocks or endogenous [اندرونی] policy excesses. A terms of trade shock is an example of the former, and refers to a collapse of export prices or a sustained surge [بلندی] in import prices faced by an economy — as experienced by many import-dependent developing countries in the wake of the Russo-Ukraine conflict.
Crises resulting from sudden stops are usually caused by a flight-to-safety of internationally invested capital in response to the US Federal Reserve raising interest rates. A debt crisis results from an inability to service (usually external) debt obligations due to falling foreign exchange reserves in relation to debt servicing, while a banking crisis emanates [جنم لینا، نکلنا] from systemic failures in a country’s banking sector.
Read: Lessons from Lanka
Although there can be, and usually are, overlaps between the four types of crises, with a crisis initially starting off as one type and then morphing into[تبدیل ہوتے ہوئے] another, Pakistan’s external account crisis episodes can generally be traced to large external trade imbalances caused invariably by policy settings being too lax [ڈھیلی ڈھالی], leading to ‘overheating’ in the economy. Large fiscal [مالیاتی] deficits and/or excessive credit and money creation have often been to blame for this type of crisis. However, during the 1990s, there were two episodes when Pakistan faced balance of payments stress due to a terms of trade shock as well as a ‘sudden stop’ caused by the US Fed tightening monetary policy.
Pakistan is on the cusp of an unprecedented economic and political crisis.
What makes the current crisis unique in Pakistan’s recent history, is that the impending crisis[آنے والا بحران] ticks all the boxes (barring, for now, a banking crisis); the external account is under pressure due to a combination of import prices having spiked [بلند ہونا] sharply since early 2021, as well as too-accommodative domestic policy settings. The US Federal Reserve has begun a sharp course correction by raising interest rates, which will impact the availability as well as pricing of external private capital available to countries like Pakistan. And Pakistan’s external debt repayments profile is markedly elevated[واضح طور پر بلند ہوا] for the next few years. The resulting gross external financing requirement is estimated to be around nine per cent of GDP — in a similar range to 2018, and pretty much as unsustainable.
The path of the crisis and its implications are going to be fairly similar to what was experienced in 2018, with one crucial difference — severity. The magnitude of this crisis is, unfortunately, likely to be unprecedented. The confluence [باہم اکٹھے ہوجانا] of pressures from several fronts, amid a world in turmoil, has already taken its toll on several vulnerable [جس کو نقصان پہنچ سکتا ہو] emerging markets, and Pakistan is unlikely going to be an exception. Hence, the need for much greater agility in course correction in policy settings than is being currently shown.
The impending economic crisis will be amplified by the political (as well as judicial) crisis that has engulfed [نگل لیا] the country with the heavily engineered removal of the PTI government. The installation of a wobbly rainbow coalition [رنگ برنگا اتحاد], with legitimacy as well as credibility issues, for an ‘interim’ time frame will impede[رکاوٹ بننا] the whole-of-nation response that the crisis of this magnitude demands. Facing the real possibility of a popular movement against it, and heading into elections sooner rather than later, will blunt [مدھم کرنا] any impulse [محرک] for meaningful reforms from the administration — as will the disparate [ جس میں مختلف طرح کے لوگ یا اشیا ہوں]coalition of political parties and interests holding the government together.
Under these circumstances, what needs to be done? The short-term impulse of arranging external financing while avoiding course correction (what Paul Krugman termed “over-financing and under-adjustment”) needs to be avoided. The correction of the excesses in the policy mix should have started and is past due. (Following through on the energy and grains deals with Russia initiated by the previous government will provide an important breather — but requires a spine [جراٴت] that is currently missing in Rawalpindi as well as Islamabad.)
For a more durable recovery, the political crisis will have to be resolved through free and fair elections that brings in a legitimate government with a fresh mandate. A strong government reflecting the will of a majority of the country needs to be in place to institute the difficult road to economic recovery. The anchor of the recovery road map should be a clear and comprehensive plan for institutional and structural reforms. This plan should be formulated by a high-powered ‘National Reforms Commission’ under the elected prime minister, which should also be entrusted with overseeing implementation.
The ‘National Reforms Commission’ should not be constituted on the template of the various economic advisory councils formed in the past. A major difference should be that it should not consist of businessmen, or just a small group of economists. It should bring into service an eclectic group of professionals, including inter alia [بشمول دیگر چیزوں کے] practitioners in change management, organisational design and development, organisational and behavioural psychology, HR, among others, to formulate and oversee plans for restructuring of government and civil service (taking advantage of the corpus of work already done under Dr Ishrat Husain’s stewardship), state-owned enterprises, public financial management, institutions of economic governance (FBR, State Bank, Planning Commission, Securities & Exchange Commission of Pakistan, Board of Investment etc), and the major sectors of the economy such as exports, agriculture and industry.
This is a long road to recovery with no ‘silver bullets’ or shortcuts. Without a grand design for institutional and structural reforms, as well as an overhaul of its governance model, Pakistan will continue to slip further into an economic and political morass [دلدل].
The writer is a former member of the prime minister’s economic advisory council.
Published in Dawn, May 8th, 2022
Huma Yusuf Published May 30, 2022
THE recent political circus in Islamabad — replete with tear gas and the burning of trees — has distracted the nation from some media reports of developments in Kabul where senior establishment figures are believed to be holding negotiations with the Tehreek-i-Taliban Pakistan (TTP). While fighting for political survival at D-Chowk, have the PML-N and PTI lost the battle for civilian supremacy over a process that could have existential implications for the country? Certainly, their bickering inside and outside parliament deflected their attention from the militant threat.
News of the negotiations with the TTP is unconfirmed, leaking on social media with little scrutiny by mainstream media or civil society. What is clear is that the on-off talks with the TTP that have taken place since last autumn are not being channelled through parliament.
Read more: The Taliban mindset
This is not a surprise for Pakistanis, who have been long accustomed to the fact that security policies are not shaped by their civilian leaders. But disengagement of elected representatives from shaping Pakistan’s approach to militant forces could impact Pakistan’s political and social trajectory in a way that will weaken democracy.
The TTP’s demands have always ranged from the predictable to the intolerable. For instance, media reports have earlier mentioned that it has been demanding the release of its prisoners, dropping of legal cases against its leadership, and troop withdrawal from the erstwhile tribal areas.
Politicians’ input in resolving militancy issues must be clear.
More recently, commenters on social media have suggested some demands tread into the realms of governance and law. However, the demands have not been made public officially. For ceasefire negotiations to have credibility, they must be handled transparently, with elected representatives informing the public about demands, compromises, and any concessions made.
Read: Will give TTP a chance if they respect the law of Pakistan, says Fawad
Our elected representatives must also demonstrate to Pakistanis that negotiations are taking place with the nation’s best interests in mind. The last government had made it clear that the state would only negotiate with those who respected the Constitution. The current government must make its position clear too. Instead of political bickering, major parties should come together to jointly craft ‘red lines’ to steer the course of negotiations, ensuring that any concessions serve Pakistan while protecting its Constitution, laws and society.
There can be no denying that the TTP — like its patron, the Afghan Taliban — is committed to an ambition of implementing a Sharia-based ruling order in Pakistan in the same way that Afghanistan now has. No concessions at any time will check this ambition. Parliament must have a say in any agreement.
Parliament should also have a say on the timing of negotiations. The TTP is currently emboldened as it has well-established bases in Afghanistan, and close ties with the Afghan Taliban’s leadership as well as rank and file. They know that the Afghan Taliban would not risk a confrontation with the TTP while still consolidating its governing position.
Indeed, the Afghan Taliban have already made clear that they will not ‘handle’ the TTP on Pakistan’s instruction; they are merely mediators. This way, the Afghan Taliban preserve both their allegiance to the TTP and their political relations with Islamabad.
All the more reason why we need parliament to steer this process. A Pakistan trying to manage an uncertain ceasefire with the TTP would need holistic planning; both to ensure the success of negotiated outcomes, and to plan for all scenarios in case the agreement breaks down. This would require coordination across the areas of security preparations, devolved government, infrastructure planning, education policies and even healthcare delivery in the form of vaccination campaigns.
A parliament-led outcome may not be significantly different from the one that is reportedly being negotiated. After all, a PPP government presided over the first passage of the Nizam-i-Adl, and Prime Minister Shehbaz Sharif, while Punjab chief minister, appealed to the TTP to spare Punjab (implicitly at the cost of the rest of the country). But Pakistanis must know what their representatives are willing to concede on their behalf, and know that they can vote them out if they disagree with the approach.
In the context of potentially accommodating militants in exchange for what can only be a tenuous ceasefire (given the group’s history of quickly breaching any agreements with the government or military), the conciliatory tone of Sharif’s speech on Friday is welcome. His call for the public to eschew polarisation is key to refocusing the country’s attentions on critical security developments. And his vision for an inclusive Pakistan where minorities and women feel safe offers an essential counterpoint for those of us who do not relish the idea of life under the TTP’s shadow.
The writer is a political and integrity risk analyst.
Twitter: @humayusuf
Published in Dawn, May 30th, 2022
|
