Stabilisation to keep growth subdued

The World Bank in its latest report titled "Global Economic Prospects, Slow Growth, Policy Challenges" states that growth in Pakistan is expected to languish at 3 percent or less through 2020 as macroeconomic stabilisation efforts weigh heavily on activity. There is no doubt that the stabilisation policies including a range of monetary (13.25 percent high discount rate and the adoption of a market-based exchange rate mechanism with the rupee undervalued by around 5 percent at last count by the State Bank of Pakistan) and fiscal measures (an unrealistic Federal Board of Revenue target of 5.5 trillion rupees, projected at 5.3 trillion rupees by the end of the current fiscal year in the IMF's first review report though this amount too is regarded as unrealistic) are slowing down the economy with the salutary objectives of launching far-reaching structural and governance reforms and containing inflation.

However, economic theory is not about one narrow and clearly defined path towards achieving desired objectives (which incidentally are shared by most if not all governments) for if that were indeed the case, there would be no reason for the multiplicity of economic theories that predominate in economic literature. Additionally, several well-respected economists who hold (or have held the finance portfolio in the past or whose advice is sought by the policymakers) constantly monitor the outcome of economic policies - structural reforms, governance reforms as well as fiscal and monetary policies - and along the way calibrate them to ensure that the poor and the vulnerable are not being overly-burdened and that economic activity has not stalled to the detriment of employment levels in the country. This constant reassessment of all monetary and fiscal policies is extremely critical for failure to engage in this activity may well reverberate on the streets compelling a government to abandon the entire reform agenda.

It is Business Recorder's considered opinion that the ongoing 6 billion dollar International Monetary Fund (IMF) programme requires some tweaking particularly in relation to monetary and fiscal policies as their impact is too harsh on the poor and the vulnerable and the growing numbers of unemployed. The rate of growth projected by the IMF is 2.4 percent for 2020 (which has remained unchanged since the staff-level agreement was reached on 12 May 2019) - a rate that has led to many industrial units closing down (with large-scale manufacturing declining by 6.8 percent with a commensurate impact on downstream industries operating as small or medium-sized units) and with incomes contracting due to depreciation, the demand for goods and services has also been scaled down. In this scenario, one would hope that the country's principal leadership would prevail upon its economic team to consider revisiting policies, not their abandonment but tweaking them, to minimize their negative impact on the people of this country, particularly the poor and the most vulnerable.

To date, the government is focusing on actual handouts to insulate the poor from the negative impact of its policies (under Ehsaas/Benazir Income Support Programme/health cards/ration cards/outright subsidies for small electricity users) however, it is relevant to note that IMF's first review (uploaded on its website in December 2019) notes the following disturbing facts: (i) social sector development (inclusive of Ehsaas/BISP) was disbursed less than one percent of what was budgeted for the year; (ii) public sector development programme which spearheads growth and employment in the country received less than 9 percent of the amount budgeted for the year; and (iii) education and health (irrespective of the health cards issued) did not meet the budgeted allocation for the first quarter of the year. Additionally, in spite of tall claims of the energy ministry, the debilitating circular energy sector debt has continued to rise and the public continues to pay for the high cost of poor governance, the cost of constant borrowing to meet the sector's liquidity needs, and unchecked distribution and transmission losses in steadily rising tariffs which has also raised input costs of all economic activity to prohibitively high levels.

Therefore, there is an urgent need to tweak some of the policies agreed with the IMF and one would hope that the prime minister and his cabinet consider doing so sooner rather than later when water may have overrun the bridge.