Following the 2018 general elections, the new government led by PM Imran Khan was sworn-in on August 18, 2018. A third party that had fought the elections on a manifesto of justice for all, accountability of the powerful and creation of a social welfare state, with jobs and housing for the masses was facing an immediate default. The gross external financing requirement left behind by the PML-N government exceeded Pakistan’s official foreign reserves by 300 percent. No financing arrangements were in place and the economy was tottering towards collapse and business confidence had evaporated.
Not only did the PTI government inherit a bankrupt economy, it also inherited an institutional and governance wreck that by all global standards had miserably failed. In Global rankings Pakistan’s per capita income was stagnating at 161st. It ranked 136th in Ease of Doing Business index, 110th on the global competiveness index, 156th on the human development Index, 122th on the social progress index, 122nd on the logistics index and 148th on the E-government development Index. The country was 105th on the innovation index and 117th on the corruption index. Pakistan’s governance institutions were fossilized, unreformed and totally incapable of managing the national economy in a globalized world.
The government was faced with very unsavoury options. The party commitments of creating millions of jobs and housing for all, were pitted against hard economic reality at hand. The options were either default on external liabilities and unleash total mayhem in the economy with unimaginable and irreversible costs imposed on the poor people of Pakistan or go to the IMF and submit to their bitter medicine which would also be very painful for the people of Pakistan but with the possibility of recovering after implementation of necessary reforms.
The IMF was in no mood to accommodate a gradual sequencing of adjustment but were looking for upfront adjustments that would involve immediate and substantial devaluation of the rupee and doubling of interest rates. This would unleash cost-push inflation that would flow through the economy over several months devastating the living standards of the poor; simultaneous contraction of the economy would lead to massive unemployment and swell the ranks of people living under the poverty line. The political costs to the government would build up rapidly and become unbearable.
In an effort to delay the inevitable, Pakistan turned to friendly countries to raise the needed financing. It succeeded in raising twelve billion dollars of support which provided critical respite from default. But it was insufficient to fill the total ‘Gap’ and did not enable the government to pursue a home-grown reforms agenda. Protracted negotiations continued and finally, on July 3, 2019, Pakistan and the International Monetary Fund (IMF) announced an agreement on a 39-month Extended Fund Facility (EFF) amounting to US$ 6.0 billion. The approval also unlocked new financing from international partners of around US$ 38 billion; an amount just sufficient to meet Pakistan’s financing needs during its economic recovery phase.
The Prime Minister carefully chose a competent and well- regarded economic team which has clear instructions to achieve prescribed IMF targets and the government’s own multifaceted ambitious goals of boosting investments, exports, remittances, equitable taxes, institutional reforms, revamping the State owned enterprises and carrying out Privatizations. The energy team is on notice to create a viable and competitive energy sector within the shortest period of time and bring the cost of energy down to international standards. In this regard, two major hydro power projects have been launched and efforts are on to accelerate indigenization of power through renewable solar power.
In the eighteen months since the commencement of the IMF programme, the government has borne the brunt of the predictable fallout; high inflation and job losses have extracted a huge political cost from the government. Coupled with the onset of economic disruption caused by Covid-19 the government is faced with incredible challenges to simultaneously keep the economy on track and also contain the pandemic-a task it is performing reasonably well which has been recognized at home and abroad for its effective strategy and management.
The opposition parties, however, having sensed the public anger at the inflationary spike and difficult economic conditions have unified on a single platform and launched a movement to dislodge the government from power for its alleged inept handling of the economy. It is ironic that the very political parties that left behind an economic mess because of years of abuse and neglect of economic governance by their respective leadership, are trying to whip up widespread protests on the streets to destabilize the government and perhaps escape accountability and make a comeback.
The public rallies and demonstrations have fortunately not been able to gain the necessary momentum to destabilize the government. The people in spite of their hardships seem willing to give the government time to deliver on its promises and complete its five-year term. PM Imran Khan has clearly demonstrated his ability to take tough decisions without wavering under tremendous political pressure and an overtly aggressive media. Unlike traditional politicians he is refreshingly honest and his candid remarks on the dysfunctional institutional governance are regularly misconstrued by his detractors to confuse people.
The fact of the matter is that his leadership saved Pakistan from default and its consequential damages, he knowingly signed on to a tough IMF programme with the intent to successfully complete it, irrespective of the political cost that had to be incurred. He has in the process stabilized the economy and converted the largest current account deficit the country had to face in its history, into a current account surplus. Foreign reserves have been strengthened by almost $ 6 billion without increase in net borrowing. The country has been able to successfully cope with the deadliest pandemic in a century and not only the lives of the people have been protected but also their livelihoods have been preserved by keeping the production supply chains open and preventing an economic meltdown similar to the meltdown in our neighborhood or the disruptions faced by advanced economies of Europe and America.
To generate maximum number of jobs quickly, the PM is totally reforming the construction sector, removing its shackles and streamlining its ecosystem. Approval systems have been simplified and deregulated, housing finance has been rejuvenated, taxes have been simplified and reduced. Hounding of investors and house owners by the bureaucracy and tax authorities has been reduced. Construction activity has picked up and sales of building materials is booming. He has fast tracked the launching, ground=breaking and development of a green, modern 21st century new Lahore city along the banks of River Ravi and the development of modern new offshore city in Karachi. Considerable international investment interest has been generated and road shows are planned across major overseas Pakistani communities to attract foreign investment flows.
Problems of the exporters have been tackled effectively and their cost of doing business has come down substantially resulting in exporters’ order books getting filled up rapidly. He is promoting digitalization of the economy and given a focus to the knowledge economy and established the Technology Parks Authority to usher in artificial intelligence and information technology revolution in Pakistan. The CPEC Authority has been created to accelerate the phase-2 of CPEC designed to modernize Pakistan’s agriculture and manufacturing sectors and to benefit from the improved access into the huge Chinese market due to the revamped free trade agreement with China.
In Punjab, balanced development is being rolled across all provincial divisions based on a spatial strategy comprising divisional economic development and management plans encompassing and integrating both rural and urban economies. Specialization and competitive advantage is being created and improved for each division. Urban areas in each division are being connected to create a system of cities specializing in various clusters involving agriculture, manufacturing and service sectors, through strengthening of value chain infrastructure and product markets. Public Private Partnerships for overcoming divisional infrastructure deficits have been identified and will be completed over the next three years. The aim is to attract investment, promote growth, generate exports and create jobs at the divisional level in a targeted fashion.
The Prime Minister is fully cognizant of the needed reforms to deal with the multi-pronged issues comprising macroeconomic adjustments precipitated by a fatal external debt trap; health and economic disruptions caused by the pandemic; the escalating costs of a malfunctioning energy system; exploitation of cartels and impacts of low productivity value chains in agriculture, manufacturing and services; lethargy of the regulatory and decision-making processes; the bleeding of the public sector entities; financing of critical infrastructure deficiencies; fixing of a leaky public financial management system amongst others. He knows that coalescing of all these issues at the same time requires aggressive and strong action plans with swift implementation in a comprehensive and coordinated manner.
He has embarked upon an agenda that will transform the incentive structure of the economy and revitalize the institutional governance needed to unleash the productive and competitive potential of Pakistan. Being an instinctive competitor he knows that there is a global race of competitive nations that Pakistan must excel in and must win if it has to earn its share of global wealth and earn respect in the comity of nations.
This is the first time in recent history that Pakistan has a Leader who has no dynastic ambitions nor personal business interests. He has the vision, passion and iron will to create a new modern, prosperous and just Pakistan. He wants to take its multitude of people out of abject poverty and position the youth to achieve their full potential. He is determined to lay the solid foundations of this “new Pakistan” before his term expires in 2023.
Copyright Business Recorder, 2021
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