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Crashing economy?

As Finance Minister Ishaq Dar promised last Friday to defy the odds and create hope for Pakistan’s future, the writing on the wall pointed to the contrary.

With Pakistan’s politics increasingly on the boil and the already sagging economy set to head increasingly southwards, the prospect of ‘good news’ remains highly unlikely.

Meanwhile, the rupee’s continued swing like a yo-yo in the absence of a staff level agreement between Pakistan and the IMF has increasingly set the stage for just one outcome – a crashing economy for Pakistan’s grassroots.

Even if there is a successful closure of present discussions between Pakistan and the IMF, a palpable economic crisis will fail to go away.

The crisis in today’s Pakistan carries two visible dimensions. On the one hand, fast galloping inflation of over 30 per cent as never witnessed before in Pakistan’s 76-year history has tragically fueled a national sense of disquiet seldom witnessed before. On the other hand, the disconnect between Pakistan’s present-day ruling class and its mainstream population has been seldom seen before. Together, the two trends have reinforced a formidable sense of a coming crash, if not indeed already arrived, seldom seen before.

A list of Dar’s blunders on the economic front is now in public and doesn’t deserve to be recounted in detail. Needless to say, the finance minister during his latest tenure caused panic when he publicly pronounced that private foreign reserves in local banks qualified among the country’s increasingly shrinking national reserves. And he spoilt ties with the IMF, first taking on the lender through his ‘I don’t care [about the IMF]’ line and then practically running after the world’s vital financier for countries in crisis, to close a deal.

Adding to the finance minister’s blunders are two equally vital trends.

First, Pakistan’s increasingly boiling political atmosphere only promises to fuel the distress surrounding the economy. The current rush to arrest former prime minister Imran Khan on one of the 70 plus cases against him, only promises to fuel a backlash which will inevitably hurt the already beleaguered prospects for the future.

Pakistan’s history is no stranger to a similar rush in the past to close the noose around other dissident political leaders. A careful study of history will easily reveal the recurring failure to appreciate the downside risk from politics kept on the boil with no conclusive outcome for the visible future.

Second, with economic growth in Pakistan seemingly plummeting over time, members of the ruling structure must urgently reconcile themselves with the inevitable fallout. Complacency over just a muted public response to historically high inflation is not a risk worth taking. A careful study of global history will reveal case after case of countries going through abrupt and unpredictable turmoil, partly fueled by the failure of authorities to act ahead of time and stem the tide of a public backlash.

As Pakistan’s increasingly distressed households battle the powerful reality of mounting daily inflation, the solutions to managing the distress lie in a comprehensive three-tiered action plan.

First, the galloping food inflation from recent times has been fueled by Pakistan’s repeated failures to tackle the many challenges surrounding its agriculture sector. Even the fast-growing inflation in recent years surrounding food prices failed to work as a very timely wake-up call.

Tackling the food related crisis must be done with solutions across the provinces, notably Punjab – once the source of pride as Pakistan’s proverbial bread basket. Yet, neglecting this key sector has caused an incalculable damage to Pakistan’s economic prospects. Change across the agriculture sector must be driven by a revamp of existing institutions dedicated to providing support to major crops notably wheat, rice and cotton.

But much work also needs to be done for promoting innovation that helps to diversify the sources of agricultural output and lift yields in an unprecedented manner. The tragedy of today’s Pakistan is visible nowhere more than farmers producing yields from key crops at outcomes significantly below the surrounding region.

Second, a complete halt to Pakistan’s development spending is urgently needed, followed by a revamp of development expenditure. Evidence over time from multiple sources has adequately revealed the large-scale wastage caused by corruption and inefficiency surrounding development projects. This is an especially acute risk in an election year – a period used under past governments to fund causes, individuals and lobbies to reap political benefits. Pakistan’s development spending has shrunk over time, adding acutely to the need for a sharp and shrewd management of existing budgets.

And finally, Pakistan must move urgently to remove the constraints surrounding the large community of non-profit organizations, helping them to join the pressing humanitarian work urgently in need of being undertaken. This is especially acute in Sindh where victims of last year’s devastating floods are still waiting for rehabilitation.

There’s still time to save Pakistan from an economic crash. But an urgent course correction must be undertaken immediately to change the final outcome decisively.

Email: farhanbokhari@gmail.com

Farhan Bokhari, "Crashing economy?," The News. 2023-03-08.
Keywords: Economics , Economic crash , Economic growth , Economic crisis , Corruption , Pakistan , IMF