How Exactly do we want to Grow?

Dr Kamal Monnoo

17 January 2024

Published in: The Nation

Given Pakistan’s population size and that too perhaps the youngest in the world a supporting GDP growth has been elusive for more than a decade now. This rather long period of economic downturn naturally takes its toll not just on unhealthy intra-demography shifts, but also in raising almost a generation laden with frustration and an­ger. Something perhaps generally being witnessed today in our social behavior. Essentially, it also means that we have seen is that economic policies over past decade have had overall nega­tive impacts on sustainability, productivity, and investment. As our growth has fallen behind our peers, any meaningful prog­ress with poverty reduction ceased and human development outcomes became dire. Additionally, the benefits of any short pe­riods of growth have accrued disproportionately to a narrow elite, with the majority increasingly left behind. To make matters worse, Pak­istan is among the countries most impacted by climate change, and re­cent events, including the 2022 floods, have highlighted the urgent need for investment in climate resilience. Currently, as we know, the economy is barely sustained by a short-term IMF program, inflation is record high, the Pak Rupee has depreciated sharply and foreign exchange reserves remain at uncomfortably low levels. Although recently some policy measures (in­cluding restoration of exchange rate flexibility, subsidy reforms and move­ments towards fiscal constraint) have supported economic stabilization, but the underpinning drivers of Pakistan’s economic fragility still large­ly remain to be addressed. What we need to understand is that without further and more pertinent sustainable reforms cum policy shifts, and a stable governance environment, this pattern of slow development and re­current crises will continue, thereby increasing hardships for the general public amidst deteriorating investment, faltering human development ini­tiatives and more and more intensified climate change impacts.

The silver lining could be that the current crisis could be a wake-up call or a turning point. Many countries like Indonesia, India and Viet­nam have taken the opportunity presented to them by crisis to pursue deep economic reforms in order to drive step changes in growth in-turn unleashing significant yet sustainable improvements in national living standards. With sufficient political will and through productive upcom­ing elections, Pakistan can also follow this path by consciously shunning past policies that only serve short-term interests of a select few and in­stead embark on long-term development and growth where benefits are broadly shared. Meaning, 2024 could be a make-or-break year, as it is time for us to decide whether to maintain the status quo or boldly move towards sustainable, inclusive and more importantly high growth. Over the past months there have been a number of studies, deliberations and analysis by various domestic and international institutions that more or less agree on the critical policy shifts that are required today to move away from the present below par equilibrium towards the main objec­tive of sustainable and inclusive growth by way of enhanced investment that arrests de-industrialisation, generates employment and reduces poverty. To broadly sum up the consensus points, Pakistan should un­dertake the following six major policy shifts to emulate what its compet­itors or similar economies have done:

One: Social System – From an underfunded, inefficient and fragmented service delivery and social protection system to a professionally and trans­parently one that is coordinated, efficient and suitably financed. More im­portantly, it needs to be targeted towards the most vulnerable. Two: Public Spending & Taxation – From waster, unsustainable and rigid public expen­ditures to scrutiny based prioritised public spending that supports growth and development, including climate adaptation; and from a narrow, distor­tive and inequitable taxation structure to a one that is broad-based, effi­cient, progressive and equitable. Three: State’s footprint on the economy – From a protected, stagnant and unproductive economy with an over-sized State’s footprint to a dynamic open economy led by the private sector with special emphasis on exports. Four: Agriculture – From agriculture policies that constrain farmers into low-value & low-productivity farming systems to market-based & productive agriculture systems that are conducive to small land holdings and resilient to climate change. Five: Energy Sector – From energy policies that drive high energy costs, environmental degrada­tion and unsustainable debt to the ones that are efficient, sustainable and include a complete uplift of the present transmission and distribution net­works. Moreover, the sector needs to be opened up to the private sector in order to draw fair competition in-turn leading to fair and regionally com­petitive energy prices. Lastly, Six: Bureaucratic Reforms – From a bureau­cracy that is laden with vested interests, inefficient, incompetent and cor­rupt to transforming into a force that is accountable and operates on merit. One can only hope that the incoming lot will assume the mantle with a re­solve to make a difference and not just be content with business as usual!