The usual complacency Wake

The current steps taken by the present government to address market distortions cum non-economic malaise are very welcome, at best these are short-term solutions that essentially provide a window to undertake broader market reforms to address the real un­derlying economic issues being faced by Pakistan’s economy today. Let compla­cency creep in by assuming that everything is moving in the right direction and before one knows the window for ringing the re­quired reforms gets closed and the economy gets back into the previ­ous tailspin. Therefore, it is impor­tant to quickly build on this will and newfound resolve of the state and on its recent operational ac­tions, by following up on these ef­forts through some prudent policy­making that truly aims at making the economy sustainable over the long term. Ensuring border con­trols to check smuggling and cor­ruption, checking parallel dollar market functioning to erode the central bank’s influence cum au­thority over markets and stopping thieves from stealing a state’s pow­er production or for that matter robbing any of its enterprises, all givens in developed and progres­sive global economies and rare­ly come even under discussion on economic management. The mere fact is that the state of Pakistan and its machinery had slipped, became complicit and involved in self-en­richment and now correcting its sins through some soul searching by the new boys in the hot seat! 

What one needs to remember is that all these years that have led the country to be where it is (eco­nomically) today, there has been a consistent history of fiscal excess­es. In the process, Pakistan has to ask for so many IMF bail-outs over the last half a century that the Fund itself seems to have almost given up on us. Also, an ever-grow­ing state footprint on the econo­my has meant that due to crowd­ing out of the private sector the capital has mainly been in ineffi­cient hands, thereby today reduc­ing the private sector to a paltry 15% of the economy from perhaps a historically high of around 38% in the 60s and then almost 33% in the 90s. The SOEs have contin­ued to post un-sustainable losses, leaving the government in a posi­tion where it has to corner almost 85% of the market debt in circula­tion just to keep operational; this in an artificially high-interest rate environment, in turn making it ex­tremely difficult for the state to even meet its debt servicing obli­gations without resorting to fur­ther borrowings (a debt trap). 

Then, there is also the exter­nal debt of more than $130 billion with little to show for it. Forget Mil­ton Friedman’s recipe of economic management advising that the ide­al size of the state is where it is tiny and its role in the economy non-ex­istent, even by Keynes’s yardstick today’s size of the government is totally unwieldy and needs to be re­duced. However, the trouble is that if it does so now, given the current malaise this by itself will not be enough. There is a strong argument that the real tangible size of Paki­stan’s GDP may well be below $300 billion, implying that its foreign debt at almost 45% is not service­able without an outright haircut or some serious restructuring; the fact that quite a big chunk of this hastily acquired debt is actually quite ex­pensive makes the equation even worse. Well, on a brighter note, for­tunately, economies right in our neighbourhood have successfully performed this Houdini Act, cour­tesy of a stable government ensur­ing continuity of policies. 

Not very long ago we had an ec­onomically weak and struggling India and our ex-part Bangladesh was placed in the bracket of poor countries requiring the primary focus of global economic aid. To­day all this has changed where­by the economic turnaround has been brought about by the real stakeholders in generating pro­ductive economic activity, mean­ing the private sector through some sound economic gover­nance and oversight. If there is a will, there is a way. The situation is by no means irreversible. Right across our shores, the then-new Sultan of Oman rescued his econ­omy from the very brink of a prec­ipice: GDP growth rate had fall­en to under 2%, the external debt had risen to almost 94% of GDP in 2019, the current account defi­cit had swelled to almost 15% and the non-oil economy had shrunk to below 4%, all primarily owing to poor policies. He did so by careful­ly overhauling the economic and investment ministries, taking in well-qualified and international­ly acknowledged experts from the private sector and giving them a clear mandate to bring new non-oil investments and create jobs, realising that it is the businesses that attract FDIs and not the gov­ernments. Even more importantly, he shunned conflicts by declaring Oman neutral and not only avoid­ed undertaking any flashy or me­ga-projects but also made sure that though the kingdom remains a stakeholder, it distances itself from the management of Oman’s corporate affairs and let them run on market principles whilst ensur­ing a fair and transparent operat­ing environment. The results are there for everyone to see in just 3 years with the budget deficit now at zero, a GDP growth rate nearing 5% and an unemployment level below 3% or nil in real terms!

Dr Kamal Monnoo

The writer is an entrepreneur and economic analyst. He can be contacted at

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