P
akistan’s fiscal situation remains precarious. This has led to discussions on viable strategies to navigate the country out of this crisis. Despite the ongoing dialogue, no consensus solution has emerged. As elections are around the corner, political parties have yet to engage in a substantive debate to present their economic agendas to the public.
The fiscal constraints have been exacerbated by the restrictions imposed by the International Monetary Fund through various covenants and performance criteria. Seeing little fiscal leeway, experts are emphasising the importance of adhering to financial discipline and implementing fundamental reforms as the crucial path for Pakistan to embark on a sustainable reform journey.
The National Accounts Committee recently released revised GDP growth projections for the fiscal year 2022-23, making a downward revision from the initial estimate of 0.29 percent to minus (-) 0.17 percent. According to the revised figures, the industrial sector witnessed a further decline in growth, dropping from -2.94 percent to -3.76 percent.
This contraction is attributed to decreases in large scale manufacturing from -7.98 percent to -9.87 percent and construction from -5.53 percent to -9.16 percent. Similarly, the services sector experienced a decline in growth, falling from 0.86 percent to 0.07 percent. Various sub-sectors within services contributed to this downturn, including transportation and storage (from 4.73 percent to 3.27 percent), information and communication (from 6.93 percent to -2.55 percent), finance and insurance (from -3.82 percent to -8.09 percent), public administration and social security (from -7.76 percent to -8.99 percent) and education (from 10.44 percent to 9.94 percent).
The current predicament can be largely attributed to ad hoc decision-making and short-term perspectives of those in leadership positions. Our economic landscape has been marked by erratic and reactive cycles. Critical measures have been implemented only when the economy has faced a crisis. These actions are often temporary, serving only to wriggle past the immediate challenges. Once the crisis subsides, there is a tendency to forgo sustained actions. This has perpetuated a cycle of short-sighted responses.
The past 18 months have been especially difficult for the economy. These have been marked by soaring inflation and policy rate fluctuations impacting business performance. Despite these difficulties, Pakistan’s commitment to the terms outlined in the ongoing IMF programme has played a critical role in facilitating recovery.
Swift implementation of contractionary measures, while contributing to negative GDP growth in FY 22-23, set the stage for a turnaround. With an unwavering adherence to programme terms and improved financial discipline, national economy demonstrated resilience in the first quarter (Q1) 2023-24, registering a growth of 2.13 percent, a notable increase from the 0.96 percent recorded in the comparable Q1 of 2022-23.
The agriculture sector registered a growth rate of 5.06 percent, industry 2.48 percent and services 0.82 percent. Within the agriculture sector, major crops experienced a noteworthy growth of 6.13 percent.
The press release on national accounts offers encouraging insights, indicating an expansion in the sowing area for rice (21 percent), cotton (11 percent) and maize (5 percent) compared to the previous year suggesting favourable trends in agricultural productivity.
The industrial sector, which experienced a persistent decline for three out of four quarters in the fiscal year 2022-23 and a modest growth in Q2, has undergone a notable shift in trajectory during the first quarter of 2023-24, registering a growth of 2.48 percent.
Associated indicators, such as large-scale manufacturing, growth in electricity generation and distribution, gas distribution, and water supply, as well as production of cement, align with this positive trend suggesting a turnaround and a potential reversal of the earlier pattern.
In the face of an otherwise gloomy economic landscape, this positive momentum has provided a ray of hope. It is imperative for the government to prioritise revival of investor confidence and create an enabling environment. Reflecting on our less-than-impressive history, it is evident that both government officials and local/ international experts agree on the necessity for profound changes.
Regrettably, inertia persists and substantive efforts are lacking. A major obstacle hindering genuine structural reforms is the influence of vested interests and pressure groups, particularly industries and sectors that directly benefit from policy distortions, subsidies, tax rebates and exemptions, within the corridors of power.
A persistent undercurrent of anger and dissatisfaction with the prevailing system is marked by elite capture and political opportunism. In this system, the common citizen is constrained by inadequate access to education, healthcare and unhygienic living conditions. It is imperative for political parties to explicitly pledge and undertake concrete measures aimed at expanding the tax base rather than merely increasing rates for existing taxpayers.
The present environment of elite capture and prioritising political interests over national interests is negatively impacting the economy’s ability to operate sustainably. There is a glaring disconnect between political leadership and ground realities. A vibrant youth and a growing educated class yearn for substantive change and improvement in their living conditions.
The political leadership is currently engaged in forming alliances to secure power, seemingly oblivious to the fact that during these times of uncertainty the public seeks hope and strategies to alleviate burdens imposed on them by a staggering inflation rate exceeding 26 percent. With elections fast approaching, it is unfortunate that not a single political party has unveiled its manifesto for the public so far. The voters are entitled to know what is in store for them in terms of economic policies.
Currently the size of the informal economy is estimated at about 35.6 percent, equivalent to $351 billion at GDP purchasing power parity level. Despite the potential advantages of embracing technology to enhance control and document the economy, policymakers and rulers appear content with the sizable informal economy.
Rather than leveraging technology to boost financial inclusion and streamline economic activities, there is a propensity to impose additional taxes on struggling businesses and salaried individuals. This approach, aimed at broadening the tax base to meet revenue targets, further burdens entities already grappling with economic challenges.
The politicians should shift their focus away from power dynamics and pay attention to delivering essential health and education facilities and creating employment opportunities.
There is an urgent need for political leaders to adopt a more people-friendly approach and recognising the pressing needs of the populace.
Dr Ikramul Haq, an advocate of Supreme Court and writer, is adjunct faculty at Lahore University of Management Sciences
Abdul Rauf Shakoori is a corporate lawyer based in the USA
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