r Ishrat Husain is perhaps the only economist in Pakistan who gives hope to the nation instead of always painting a doomsday scenario. It is not that he is not aware of Pakistan’s precarious situation, but he does see light at the end of the tunnel.

His latest book, Pakistan: Economic Challenges and Solutions, clearly points out flaws in the way the national economy has been handled over the years and suggests ways to wriggle out of certain difficulties. He regrets that an opportunity to document the economy was lost during the Musharaf regime for fear of aggravating the law and order situation. This shows how difficult it is for governments, even with a desire to remove distortions from the economy. He recalls that vested interests that usually do not confront a military dictator stood up against him once their interests were threatened.

Dr Husain explains the importance of political stability by pointing out how a flourishing economy in 2016 tumbled after the then prime minister was removed and the finance minister forced to flee. He asserts that the discontinuity in economic management and consequential uncertainty created thereby were the main reasons behind unmanageable current account deficit and fiscal imbalances that followed.

The author criticises the concept of caretaker governments in Pakistan that take over once the five-year term of an elected parliament is completed. He points out that most caretaker governments take their mandate of non-interference in key policies too literally. Citing the example of the caretaker government in 2018, which stopped funding development projects, he says after it handed over power, it took six months to resume the funding. The delay led to an increase in the project costs.

He suggests that instead of a caretaker government, a strong Election Commission headed by somebody with administrative experience should supervise the election. The outgoing should meanwhile be allowed to manage the economy and ensure continuity.

The author holds that a huge gap between domestic production and aggregate demand is another reason for frequent economic debacles. As a result, any increase in purchasing power of the people spills over towards imports. To meet the demand of the consumption-led growth, the economy moves rapidly above its speed limit.

Governments in the past have resorted to excessive borrowing to meet deficits, thereby raising the debt burden. Moreover, the tax net has been so narrow that the state has been unable to benefit from any gains from high economic growth. The author says that experience has shown that living on borrowed money and continuing with conspicuous consumption rather than saving and investment, along with huge losses of state-owned enterprises, would always lead to recurring fiscal and balance-of-payment crises. Other factors contributing to this crisis include protecting domestic industries at the expense of exports, failing to expand the production capacity to match demand, neglecting human capital formation, ignoring science and technology and the ever-growing energy circular debt.

Having pointed out these flaws, Dr Husain suggests the way forward. He holds that the first priority should be to achieve macroeconomic stability. Next, stress should be on socially inclusive economic growth, job creation and poverty reduction.

The book points out that the pain that the nation is currently going through is self-inflicted. It also explains that implementing transparent reforms is an uphill task. Much has been done to define the contents and contours of reforms, but the asymmetry in the accrual of losses and gains is the main stumbling block to their implementation. Losses for the vested interests are immediate and definable if reforms are implemented in their letter and spirit; no wonder the organised groups agitate and resist reforms. This resistance threatens to erode the political capital of the ruling party and weaken its schances in the electoral process.

Of the 14 chapters in the book, the first four discuss the macroeconomic issues and explain the current situations. The much-needed structural reforms and the importance of their implementation are discussed keeping in view the cultural and economic situation and the society’s potential and challenges. The role of the government is clearly explained. The government, according to Dr Hussain, has no business doing business. It needs to make privatising all state-owned enterprises a priority. The most difficult goal to achieve macroeconomic stability is to break the vicious cycle of boom and bust.

The book proposes ways to manage inflation. It pleads for coordination between various ministries and departments to ensure seamless achievement of targets. The maxim, ‘justice delayed is justice denied,’ has been shown in case of judicial delays relating to economic issues, like extraordinary delays in cases relating to fines and penalties or delay in settling default cases in the banking courts. The positives and negatives of rupee devaluation are explained in some detail. The last chapter on macro economy discusses public finance, including repairs needed in provincial finances.

The following ten chapters discuss every aspect of the economy, from banks to the private sector. The seventh chapter, which is on governance, is perhaps the most important of all. Undoubtedly, good governance is the ultimate cure for all our ills. When there is good governance, no one who break the rules and escape accountability. When rules are strictly adhered to, reforms yield the intended results. Dr Husain laments that the national bureaucracy still carries the vestiges of British rule. The ideas central to Indian Civil Service, he says have become outdated. There is a pressing need to introduce changes in line with the modern-day reality.

The author did advise the Musharraf regime on these reforms after he relinquished responsibility governor of the State Bank of Pakistan. He also worked with the Pakistan Peoples Party government that succeeded him. His most comprehensive report on civil service reforms was presented to the PTI government in its third year. It was highly appreciated but diluted at many levels due to the political and bureaucratic pressures that have been discussed in the book. Despite its being an accepted document, the implementation has been partial at best. For those who for some reason cannot read the entire book, reading the Chapter 7, which is related to governance and institutional performance, is highly recommended.

Pakistan: Economic Challenges and Solutions

Author: Dr Ishrat Husain

Pages: 439, Hardback

Price: Rs 2,995

The writer is a senior economic reviewer at The News International, Lahore