'Economic war cabinet' - IK's finest hour in PM's office

ARTICLE: Covid-19 has unleashed a war-like situation for economies across the world. According to the International Monetary Fund's flagship report World Economic Outlook (WEO) update released this week, unlike the initial report of WEO released in April 2020 when the global real GDP growth rate for 2020 was projected at negative 3 percent, the new forecast has gone much worse at negative 4.9 percent. The significant revision here, in turn, highlights the lack of inter-disciplinary insight of economic models - which need to be more inclusive going forward - and also the very uncertain nature of future due to the pandemic.

Specifically, the Report highlights that Pakistan's real GDP will likely be negative 0.4 percent for 2020, and is expected to improve to only 1 percent in 2021. Here, too, WEO's April Report had expected a lesser impact of Covid-19 on Pakistan's economy in which real GDP projected for 2020 was 1.1 percent. This means that the correction has been more severe for the economy, indicating the more profound impact of the pandemic than initially envisaged, which means that the actual growth for 2020 and 2021 for both the economies of the world, including Pakistan's may still be worse the discovery of a vaccine may take another 12 to 18 months, and also because the June 2020 update of WEO expects the global economic growth to take a 'swoosh' shape - a sharp downturn in global economic growth rate, entering the negative region, and then followed by a gradual recovery.

The pandemic, which has caused damage to the shores of the developed world, in the global south. It has emerged as a tsunami in developing countries like Pakistan as well, which were only showing first signs of economic recovery after barely avoiding default at the back of huge balance of payments crisis, has emerged like a tsunami. Aggregate demand and supply have collapsed. The situation has led to causing fall not only in exports but also imports, resulting in an external sector surplus, but here too any relief for the foreign reserves and pressure on currency is likely to evaporate soon given a likely significant decrease in remittances.

Moreover, FDI (foreign direct investment) is also likely to fall, which also raises a pertinent question about the untimely reported effort of government to actively start the privatisation process since, according to a recently-released "World Investment Report 2020: International production beyond the pandemic" by United Nations Conference on Trade and Development (UNCTAD), "Global flows of foreign direct investment (FDI) will be under severe pressure this year as a result of the Covid-19 pandemic. These vital resources are expected to fall sharply from 2019 levels of $1.5 trillion, dropping well below the trough reached during the global financial crisis and undoing the already lacklustre growth in international investment over the past decade. Flows to developing countries will be hit especially hard, as export-oriented and commodity-linked investments are among the most seriously affected."Added to this is the rising challenge of dealing with a looming external and domestic debt crisis, since the government is significantly indebted with regard to both, which requires a massive debt negotiation effort, which is unfortunately missing currently, for reaching a relief/moratorium.

The tsunami of the pandemic has left millions unemployed. It has ushered in a new wave of push in further increasing the already wide income inequality gap and expanding the pool of people living below the poverty line. Added to the pandemic, there has been a huge locust attack, and both the crises are already raising alarm bells for a possible significant reduction in essential grain output and food stocks.

There is an 'economic war' out there. This requires a war-like effort. Business as usual is no answer. This is a test of political leadership. This calls for formulating a 'war cabinet' under the leadership of the Prime Minister. Nothing short of this can provide the needed policy response, which is currently missing. A sea of advisors and large cabinet meetings will not allow the focus needed to defeat an enemy that has hurt the already weak economy in such a profound manner. The crisis also provides an opportunity to reach a 'great reset' for Pakistan where the informal sector is reduced significantly - and more importantly where the recovery is green. A green recovery helps create far more jobs, for example by investing in renewable sources of energy than in fossil fuels. This would also require making 'green budgets', a philosophy, which, for instance, is exceptionally followed by the budgets of New Zealand.

According to Wikipedia, "A war cabinet is a committee formed by a government in a time of war. It is usually a subset of the full executive cabinet of ministers." During the World War II, Prime Minister of Britain Winston Churchill made a war cabinet to fight the 'Axis' alliance of three main partners - Germany, Italy, and Japan. The current situation too constitutes an 'Axis' of Covid-19, economy, and poverty. Moreover, just like the then 'Axis' had main partners, there were also a number of 'satellites'. Unemployment, debt, and hunger could be described as 'satellite' in relation to the present 'Axis'.

Prime Minister Imran Khan should understand the importance of an 'economic war cabinet' to deal with the economic war. A dedicated focus has become a must, which should not only steer the country out of the current crisis, but also build up a pathway for a sustained economic progress. Let this 'economic war cabinet' become the finest hour for the Prime Minister. Winston Churchill had, for example, famously said, "Let us therefore brace ourselves to our duties, and so bear ourselves that if the British Empire and its Commonwealth last for a thousand years, men will still say, 'This was their finest hour'."

Headed by the Prime Minister, the 'economic war cabinet' should therefore, have ministries of finance, planning, economic affairs, along with those of health and education; and also the governor State Bank of Pakistan, for assisting in not only the monetary management but also in negotiating moratorium/relief on domestic debt. The Minister for Foreign Affairs should be a part of it, since it has an important role in terms of economic diplomacy, especially with regard to reaching debt relief/moratorium negotiations and Ministry of Defence should also be included due to its strategic understanding and specialized implementation capacity of certain related aspects of policy. In the same vein, the Ministry of Interior may also be included for governance/implementation perspectives.

So, overall, it should be around a 10-member 'economic war cabinet', since the current large setup is not only quite a big affair, but is also reportedly creating discomfort in terms of effectively playing their role in policy formulation among the elected cabinet minister, as against a large number of special assistants/advisors who should continue to work outside of this 'economic war cabinet', following usual working and communication/reporting lines.

The next two years are critical for the country's economy. They are also crucial for the current government, which has not yet come true on the massive, and much needed, economic reform agenda. The proposed 'economic war cabinet' should remain in place for at least these two years. Not only will the current economic crisis be managed in two years, a strong economic plan will also be in place on strong and sustainable footings. Till this happens, the 'economic war cabinet' should continue to co-exist with the usual policy formulation platforms.

(The writer holds PhD in Economics from the University of Barcelona; he previously worked at International Monetary Fund)

He tweets@omerjaved7

Copyright Business Recorder, 2020