The past few days have witnessed some encouraging positive developments on the country’s financial front providing the much-needed respite for economy and businesses, deeply marred by uncertainty and pessimistic sentiments.
The financial challenges that had been building up for several years gained momentum and escalated into a crisis after change of government in April 2022.
Our foreign exchange reserves had been steadily declining, mainly due to ever-increasing inflexible imports and mounting debt servicing obligations, outpacing inflows. This created unprecedented level of pressure on the Pak rupee leading to its massive depreciation.
The fundamental issue haunting us is our transformation into an “import-dependent economy” over the years. The ever-increasing population and rising domestic demand have far surpassed our local production capacity.
Even our everyday necessities, such as food, are now largely reliant on imports. Unfortunately, due to various domestic political and economic challenges, our exports have failed to match our ever-expanding import bill.
This issue has been persisting for decades, yet our legislature and executive failed to effectively address it. While we continuously hear political rhetoric about short-term and long-term goals, these plans remain largely on paper, with little or no execution for lack of comprehensive design and sound implementation strategy.
The solution to this situation involves three key steps. First, our policymakers and those entrusted with responsibility must improve the policy framework and ensure its effective implementation through better and coordinated administration.
Relying on rollovers, programmes of International Monetary Fund, refinancing, and new inflows from creditors is not a sustainable solution. The foreign exchange position will continue to deteriorate despite these short-term gains unless we manage the underlying issues.
In the short term, the government has made progress in bolstering its foreign exchange position. Thanks to administrative measures, the Pak rupee has recovered approximately 10% of its lost value.
Among major obstacles in this context is the capacity and effectiveness of our legislature and bureaucracy. It is evident that governance, which is largely controlled by bureaucracy, has not succeeded in making processes convenient, efficient, transparent, or beneficial for the public and businesses. National institutions and departments are unabatedly exacerbating the challenges faced by ordinary citizens and the nation’s economy.
These institutions and departments, operate in a cliché manner where people are inducted from a pool of resources at the disposal of federal and provincial governments. These people are employed and transferred to different areas when at times they do not even possess the required skill set. Similarly, the subordinate staff has neither been developed nor trained to upgrade itself to provide better service to public.
The responsibility for this predicament primarily falls solely on the shoulders of the leaders of these institutions and departments and they must be held accountable. Much like organizations worldwide, the government should adhere to the basic principle of appointing individuals best-suited for specific roles.
The government should be open to hiring top talent from the job market, those who possess the requisite skills and expertise to effectively carry out their assigned responsibilities. Moreover, policy framework should grant these individuals the necessary legal authority while simultaneously introducing mechanisms for ensuring accountability.
Another important issue is of the constant interference by other state functionaries, particularly the judiciary. The principle of trichotomy must be adhered to and implemented as stipulated in the supreme law of the land.
Though the courts must act where the law so permits and safeguard sanctity of law, coining new laws and setting new precedents have a direct bearing on the economic environment of the country. Arbitrary judgments have negatively impacted foreign investment climate of Pakistan and landed us in hot waters vis-à-vis international litigations.
This shortcoming has incurred several consequences. Our domestic businesses struggle to thrive and expand their presence within the local economy. Pakistan has also been unable to position itself as an attractive hub for foreign investors. As a result, we find ourselves dependent on international creditors and supportive nations who, out of goodwill, have been providing financial assistance, essentially preventing us from sinking.
International financial institutions have been providing much-needed support. Nonetheless, due to persistent delays in implementing structural reforms and dearth of political resolve, these lenders are now exhibiting reluctance. Recently, financial packages were unlocked with notably “strict” conditions. Pakistan’s pathetic GDP growth rate of 0.3% in FY23 should raise alarm, especially in view of high population growth.
Our future forecasts and estimates indicate modest growth, suggesting that the desired economic boost cannot be attained. Even if it is achieved, it may not be sustainable without fiscal adjustments and other policy reforms.
The government should divest its underperforming assets in struggling state-owned enterprises (SOEs), which are currently a huge financial burden. We should expedite our privatization efforts and transfer ownership of these units to the private sector, allowing them to run these entities on sound businesses principles and ethical values. It will provide the government with adequate fiscal space. As a result, SOEs can contribute to the national treasury, effectively transforming from “cost/loss center” into “profit/taxpaying entities”.
We need to revamp our debt management practices for which, a debt management office is already established and which requires adequate staffing and regulatory support to achieve more effective results.
Strengthened collaboration between the State Bank of Pakistan, the Budget Wing of the Ministry of Finance Division, and the Debt Management Office can empower the government to strategically plan its debt transactions and cash flow requirements in a more financially efficient manner.
The implementation and operation of the Treasury Single Account (TSA) is pivotal for improving cash management, supporting the government’s cash management and forecasting endeavours. This financial efficiency, coupled with privatization, can spare the government hundreds of billions of resources that can otherwise be used for deficit financing and debt servicing.
All said and done, political stability, undoubtedly, is a critical component for economic growth, which can only be achieved by upholding the principle of separation of powers as outlined in the 1973 Constitution.
The judiciary currently wields extensive powers, and although Parliament has attempted to democratise the authority of the Chief Justice of Pakistan through the Supreme Court (Practice and Procedure) Act 2023, recently validated by a full Supreme Court bench by a majority of 10 to 5. There is still much room for improving judicial accountability.
The existing self-accountability mechanism, in which the Chief Justice plays a significant role in appointing and removing judges, does not conform to international standards and best practices—it has been grossly misused in the recent past.
Pakistan’s stable political landscape and its economic prosperity hinge on strict adherence to the rule of law and the delivery of prompt, just and equitable justice. Without these fundamental elements in place, achieving stability within the country will remain a formidable challenge.
(Huzaima Bukhari & Dr. Ikram Haq, lawyers, and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at the Lahore University of Management Sciences (LUMS), members of the Advisory Board and Visiting Senior Fellows of the Pakistan Institute of Development Economics (PIDE) and Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’)
Copyright Business Recorder, 2023
The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS), member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). She can be reached at [email protected]
The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS) as well as member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). He can be reached at [email protected]
The writer is a US-based corporate lawyer, and specialises in white collar crimes and sanctions compliance. He has written several books on corporate and taxation laws of Pakistan. He can be reached at [email protected]
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