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2008 versus 2013

In my article, ‘The worst is still to come’, published on January 1, I had written that “under the most likely business-as-usual scenario, Pakistan’s economic downturn is likely to gain further momentum” and that “there is every indication that the people of Pakistan may not see their lives improving” in 2013. The fast changing political environment in the country requires a more detailed look at the changing landscape of Pakistan’s economy in 2013.

“From the early 2000s to mid-2007, Pakistan’s macroeconomic performance was robust,” the IMF wrote in November 2008 in its document ‘Request for Stand-by Arrangement’. The unravelling of political instability in mid-2007, followed by large exogenous shocks (oil and food), adverse security development and global financial turmoil buffeted Pakistan’s economy. These shocks, combined with policy inaction during the political transition to a new government and large central bank financing of the growing fiscal deficit of 2007-08, led to slower economic growth, higher inflation, and sharp deterioration in the external balance of payments.

2008 can be regarded as one of the most difficult years in Pakistan’s economic history. Despite serious difficulties, Pakistan’s economy survived the extraordinary domestic and external shocks for two reasons. First, the economy could absorb these shocks because it had been growing well prior to 2008. Second, side by side with the robust economic performance during 2000-2007, the IMF came forward with exceptional access to resources ($7.6 billion, or 500 percent of the quota).

The regime that took charge in March 2008 was expected to address the economic challenges confronting the country. Instead, the new government proved incompetent in addressing them. While the rest of the world was taking corrective measures and adjusting to higher food and fuel prices, Pakistan lurched from one crisis to another, with little sense of direction and purpose.

Frequent changes in the economic team, followed by fiscal indiscipline of the highest order, became the hallmark of the government’s performance. All this while economic experts continued to remind the government of impending economic destruction as a result of fiscal indiscipline, bad macroeconomic policies and misgovernance. This regime can justifiably lay claim to being the first government in the history of Pakistan to wantonly disregard wise counsel from experts in the field.

The nearly five years of economic misgovernance by the present regime have totally ravaged the economy. There are no two opinions within and outside the country that Pakistan’s economy has never been in such a bad shape as it is today, and that the writ of the state has almost vanished.

At the start of 2013, with a rapidly evolving political scenario, Pakistan’s economy is heading towards even greater disaster. First, according to Dr Farrukh Saleem (Jan 6), the battle lines have been drawn between supporters of the status quo and reformists, with a political drone attack expected to be imminent. These developments are likely to fuel more political instability, which is poisonous to economic prosperity.

Second, the economy never featured prominently on the radar of the government over the last five years. Third, massive state resources are being doled out to ‘win’ elections with serious consequences for the economy. Fourth, a serious debt repayment crisis has emerged at a time when political battle lines have been drawn and the economy has been sidelined.

In 2008, Pakistan’s economy was still robust enough to absorb extraordinary shocks. Pakistan’s economy at the start of 2013 is a totally devastated one, without the capacity to withstand further acts of political hara-kari. The ruling alliance, the opposition and the parties currently not represented in parliament are preparing to contest elections. Elections for what? There is hardly anything left in the economy, except the money printing press of the central bank.

The political leadership has no idea as to what kind of challenges are in store for them once they come to power after the elections. Can they run the economy without support from the IMF? If not, are they ready to seek IMF sources? If yes, are they ready to take difficult decisions immediately after coming into power? Enhancing domestic revenue mobilisation will be an urgent challenge for the government. Are the rulers ready to bring agricultural income under direct tax net, implement value-added tax, improve the withholding tax regime, bring various services under the tax net, improve provincial tax efforts, and review the new NFC Award for prudent fiscal management?

Are they ready to rationalise expenditure, address the issue of circular debt which is bleeding the PSE’s, the energy crisis, etc.? Most importantly, are they ready to maintain fiscal discipline? Have they done their homework? Do they have a competent economic team, or will they rely on suitcase economic managers?

These are valid questions. Sadly, the political parties, barring a few, have not done their homework on how to restore this country’s shattered economy. They are all busy politicking, totally oblivious to the state of the economy. Hence, the economy will most likely remain at the periphery in 2013 as well. The haemorrhaging of the economy will, therefore, continue at an accelerated pace.

No single party is likely to win the elections; therefore a coalition government is a very real possibility. Fiscal discipline in a coalition setup is hard to imagine; therefore, fiscal bleeding is likely to continue with adverse consequences for the economy. For Pakistan’s economy, 2013 is likely to be much different from 2008. May God grant respite to this poor country by giving it honest, committed and patriotic leaders.

The writer is principal and dean at NUST Business School in Islamabad. Email: ahkhan @nbs.edu.pk

Dr. Ashfaque H. Khan, "2008 versus 2013," The News. 2013-01-08.