Inflation has had a severe impact on the world following the Covid-19 pandemic. However, the economies with strong foundations have been affected less than the weaker economies. In Pakistan, the inflation rose to 35.4 percent in March 2023 and is expected to touch 37 percent in April 2023. In contrast, India and Bangladesh, also in the South Asian region, have had inflation rates of 6.44 and 8.78 percent in February 2023. Only Sri Lanka had a 50.6 percent inflation rate. Pakistan has been more severely affected by inflation not only due to poor economic performance but also due to political crises. To date, the trend has continued.

The Pakistan Democratic Movement (PDM) government attempted to control the current account deficit and trade deficit by cutting imports and blocking letters of credit. However, these efforts have been hindered by a decline in foreign remittances, which fell to $18 billion in February 2023 from $20.2 billion in July 2021 to February 2022. Reactive monetary policy, including an increase in the policy rate from 15 percent to 21 percent, may also have contributed to a decrease in sremittances. A more significant policy rate change could have been more effective than increasing the policy rate incrementally. Other reasons for the failure of the monetary policy include unnecessary hoarding of dollars by speculators and smuggling of dollars to Afghanistan. Both these factors have played a significant role in the failure of monetary policy and the government has been unable to address them in a timely manner. Consequently, the positive impact of policy rate changes has been less than desired , and the rupee has remained under pressure.

The IMF has had a significant influence on fiscal policy. The fiscal deficit from July 2022 to January 2023 was Rs 1,974 billion, compared to Rs 1,898 billion during the same period last year. Initially, a tax target of Rs 7,470 billion was set. This was followed in February 2023 by a mini-budget to raise another Rs 170 billion. In addition, hikes in electricity and fuel prices have hurting the economy and fuelling inflation. The IMF has been pressing the government to obtain guarantees of $3 billion support from friendly countries. This is in addition to the $1 billion already deposited by China and the roll-over of some debts. The IMF is demanding such guarantors by arguing that the current foreign exchange reserves are not enough to cover current account requirements and the upcoming debt repayments.

An economy cannot be sustained with a 35.4 percent inflation rate, an $18.8 billion trade deficit, a $3.9 billion current account deficit, foreign exchange reserves of only about $6 billion and foreign debts of $128 billion. Given this situation, immediate reforms are necessary.

The agricultural sector has the potential to provide a quick and effective solution to the country’s economic woes, provided that quality seeds, sprays, and an increase in cultivation areas are employed. In the long run, the government should prioritise research and development, the use of advanced cultivation techniques, the elimination of intermediaries, and the improvement of the supply chain and storage capacity for agricultural products. These measures will not only ensure food security but also contribute to GDP growth and reduce the import bill.

Pakistan’s core challenge is indecisiveness in economic policy. This may be the outcome of political miscalculations by successive governments.

Food self-sufficiency should be a priority, and the prime minister’s agricultural rehabilitation package is a step in the right direction, albeit enough measures have not been taken to make up for the devastation caused by the flood. To meet the local demand for meat and milk, promoting livestock production at both small and large scales is essential. Exporting livestock products to the Middle East presents a lucrative opportunity, and the government and trade organisations should take more steps to secure additional orders.

The Northern region of Pakistan is a natural haven for tourists, offering breathtaking landscapes and cultural diversity. In contrast, just a few decades ago, Dubai was a desert landscape. However, the government of Dubai invested in constructing mega structures, transforming it into a tourism hub. To attract more tourists, Pakistan needs a comprehensive marketing campaign. Furthermore, the construction of infrastructure, such as roads, train tracks, airports, and hotels, could significantly boost the tourism sector. The private sector should be incentivized to invest in these areas instead of unproductive real estate to further facilitate growth.

According to recent research and surveys, the blue economy presents great potential for economic activities, encompassing prominent sectors such as fishing, maritime transport, shipbuilding and dismantling, fuel and energy, and minerals. However, like other sectors, the opportunities within the blue economy remain largely untapped.

Pakistan has a coastline of 1,046 kilometres and a warm-water sea. The development of infrastructure and a business-friendly environment through public-private partnerships could help explore and exploit these opportunities. Chambers of commerce and business federations could raise public awareness and promote incentives for blue economy-related investments, which could contribute significantly to the GDP and employment.

In a surprising move recntly, commercial markets and wedding venues have been allowed to remain open until late night, leading to energy waste and environmental harm. To discourage this practice, the government should consider enacting legislation that substantially increases electricity rates for commercial users after 6pm. The IMF has welcomed the progress made by Pakistan over the FY23 budget, which aims to reduce the fiscal deficit, broaden the tax base and enhance social spending. The IMF has also urged Pakistan to continue with its structural reforms, especially in the energy sector, to improve efficiency and reduce subsidies.

It has been observed that Pakistan’s imports from July 2021 to February 2022 amounted to $47 billion, whereas for July 2022 to February 2023 the figure is $37 billion. In contrast, exports for the same periods were $20.6 billion and $18.6 billion respectively, indicating a significant trade deficit. To address this issue, it is imperative to reduce imports by reducing non-essential items like tea, animal food, palm oil and promoting local alternatives.

Most importantly, it is crucial for all stakeholders to agree on consistent economic policies and a charter of economy that will promote stability and long-term growth. Pakistan’s core challenge is economic policy indecisiveness. It may be the outcome of political miscalculations by successive governments. The PDM coalition government needs a clear vision for economic management but has been focusing on the political crisis instead.

The writer is a fellow at ICMA Pakistan and an economic analyst. He can be reached at muhammadakmal@gmail.com