Monday’s recovery of Pakistan’s stock markets in line with global trends and a modest fall in inflation have failed to lift the mood surrounding the economy with little hope for a robust recovery any time soon.
On the face of it, Pakistan’s current trends have emerged from one of the worst economic slowdowns in recent memory along with a failure by prime minister Imran Khan’s government to meet its targets for tax collections this year.
Meanwhile, two related events on the weekend amply highlighted the ruling structure’s failure to connect the dots. First, the agreement in Doha between Afghanistan’s Taliban and the Trump administration came amid a public recognition by US officials of Pakistan’s helpful role in stitching the deal together.
Meanwhile, the announcement of a staff agreement between the International Monetary Fund (IMF) and Pakistan following earlier reports of disagreements has raised a pertinent question – did the Washington based lender go soft on Pakistan in spite of gaps in tax collections, driven by US influence to help a helpful country? If so, that would not mark the first time that the US used its clout with the IMF to help a foreign ally at a time of need.
Second, the controversy triggered over the weekend price decrease of petroleum in tandem with increase in a government levy on petroleum products has only highlighted a bit of creative accounting. But the two – petroleum prices and the levy - taken together have failed to pass through the full effect of global oil prices for the benefit of Pakistan’s consumers. As Pakistanis suffer the consequences of a belt tightening all around, there can be few expectations of a meaningful relief that could lift the public’s mood.
More than eighteen months after the Pakistan Tehree e Insaf (PTI) took charge of Pakistan amid much fanfare over a coming new dawn, large parts of the economy remain subdued. To an extent, this was the inevitable outcome of a policy choice to curb imports and address an out of control international trade deficit and a current account deficit – legacies inherited by PTI from its predecessors.
But what was an all too evident economic malaise of 2018 has been turned in to a full blown crisis today. This turmoil has been led by what appears to be an unprecedented crisis surrounding food security for Pakistan’s majority population with no parallel during the country’s 73 year history. The controversies surrounding flour and sugar shortages in recent months and the terrible exposure of faulty policies that led to this outcome followed a long term neglect of Pakistan’s agricultural sector.
There is no one-liner driver behind this outcome. On the one hand, a deepening and multi-faceted crisis of governance across the Punjab, once the assured bread basket of Pakistan, has directly led to falling incomes of farmers. Meanwhile, conditions across Sindh-the second most productive of the four provinces also present a similarly sorry picture. In the coming weeks as farmers across Pakistan will begin their wheat harvests, few will do so with the assurance of receiving an already low official price for the procurement of this essential commodity.
Year after year every spring, Pakistan’s wheat farmers have been left at the mercy of provincial food departments, responsible for supplying jute bags marked with an official imprint known in common parlance as ‘bardana’. But year after year, such bags which assure purchases at the official rate have fallen in the hands of mafia like outfits combining unscrupulous government officials, corrupt middle men and influential farm owners with enough clout to influence the process. Meanwhile, continuing adulteration of pesticides and fertilizers along with decay in support services such as agriculture extensions across the provinces, have driven down what could otherwise have been more promising yields.
On the other hand, government policies in part lagging behind reality and otherwise only on paper with few translating in to reality have together deepened the malaise. A long awaited recovery in agriculture has failed to materialize visibly due to a failure to address key gaps. These range from revamping almost defunct institutions in the field to renewing essential services such as the once thriving agricultural extension services. In stark contrast to the 1960s when Pakistan oversaw the ‘mexi-Pak’ revolution with yields getting more than doubled within a year, the country today remains far from achieving a similar goal. Unlike the 1960s, there are simply no platforms to translate policies in to action.
Meanwhile, other key areas central to Pakistan’s economic future such as comprehensive long term reforms to curb the massive financial bleeding in public sector companies, are still waiting to begin. The future of this key sector will mark the difference between Pakistan’s ability to lift its economic prospects versus ending up in a deepening economic malaise with implications for the country’s very future.
With a total staff strength of roughly half a million employees, the public sector has held Pakistan and its successive governments ransom for decades. The threat of strikes by mafia like unions even in the face of very modest plans for reforms has provoked official inaction time and again. The combined annual under performance of public sector companies together causes a hefty one per cent of GDP or more in recurring annual losses.
Companies such as the PIA, power generation and supply services, gas companies and the Karachi steel mill together are just some of the white elephants that have not only underperformed year after year. Their losses have had a crippling effect on Pakistan’s overall economic progress. Meanwhile a significant shortfall in the target for tax collections should hardly be surprising. A mix of a failure to create clarity on how best to reform the federal board of revenue or FBR and the fallout from an overall economic slowdown had clearly set the ground for tax collections to fall significantly.
In the short term, some good news such as lower than expected global oil prices due to the Corona virus scare may give a badly needed cushion to the prime minister and his team to ease the burden of recently galloping inflation on Pakistan’s mainstream population. But this would be far from a deeper surgical cut, now long overdue to give a new direction to Pakistan’s economy.
