Less than two years ago, Pakistan’s economy was being celebrated for being dynamic, resilient, and on a path to high, sustainable, growth. Numerous international journals and newspapers- always critical of Pakistan’s economic management and governance- were waxing lyrical about the prospects for Pakistan’s economy after almost a decade of struggling.
The last fiscal year, which ended in June 2018, saw Pakistan’s highest GDP growth in 13 years. Moreover, from 2013 to 2018, the growth rate increased every year, a phenomenon not seen in Pakistan for quite some time; other than the fake ‘boom’ under Gen Musharraf, which was based on, and further resulted in, gross irrational speculation in real estate and stock market prices. The Musharraf bubble in all its manifestations – cultural, economic, political- eventually broke to reveal its false foundations.
Today, the story is very different. The expected growth rate for the current fiscal year has been lowered to near three percent, the lowest in nine years, and is expected to be lower still in the subsequent two years. Inflation has started rising again, to levels not seen for the last five years, and the rupee is worth a third less in the international market compared to what it was just a year or so ago. With lower development expenditure and lower projections for manufacturing growth, all accounts suggest that Pakistan’s economy is facing a serious crisis. However, this crisis has not been caused as much by fundamentals, as by complacency, incompetence, and utter mismanagement by the incumbent government.
The PTI government inherited an economy with the highest growth rate in 13 years, albeit strains were more than evident, especially regarding the current account and fiscal deficits. The rupee had been linked to a former finance minister’s irrational ego for far too long and would have had to give at some point. Moreover, it was also fairly clear that if the previous government of the PML-N was re-elected, it would most certainly have gone to the IMF within days of taking office.
This was also expected from the party which eventually won, despite their public bravado of claims to the contrary. Whatever views any economist held about the Fund, it was clear that Pakistan was on the verge of yet another IMF programme.
This so-called crisis which has taken place affecting Pakistan’s economy rests unambiguously on the shoulders of the finance and economic team managing the economy since August 2018, and especially on Pakistan’s finance minister. Decisions needed to be made immediately after taking office and a direction to addressing real and perceived, as well as potential problems, needed to be developed urgently. All that one has seen since the PTI government took over is a failure to understand how Pakistan’s economy works, what the key issues and problems are, and how they are to be addressed.
The hallmark of PTI’s economic programme in the last five months has been continued uncertainty and ambiguity. As anyone familiar with understanding how economies work would know, the core of all ills regarding economic planning and thinking is a government which has no clue about what to do about the economy, and hence, its chronic uncertainty.
The PTI economic team reflects such sentiments better than most governments in Pakistan’s recent history. Even if one disagrees with the politics of a particular political party, governments in the past have always put in a plan about what they want to do with the economy. Not all plans have worked, but market sentiment and investors have had some guidelines about what to expect in terms of direction, management, and policy. Since last August, this has clearly not been the case as reflected in all markers of investor sentiment and confidence. Even international agencies have had to downgrade Pakistan’s economy’s ratings on how the economy has been managed.
Other than asking its three ‘friendly’ countries for desperate loans and deposits, there seems to be no policy, leave alone a vision, regarding Pakistan’s economy. If Pakistan keeps sponsoring terrorism from its home bed, the economy will be in shatters. As such the hallmark of PTI’s economic programme in the last five months has been continued uncertainty and ambiguity.
18 Mar 19/Monday Written by Mohd Tahir Shafi