Published in Dawn on December 15, 2024
FINANCE Minister Muhammad Aurangzeb’s comment at an Islamic finance conference that, having effectively addressed its economic woes, the country is on the path to stability and growth, is overly optimistic, if not boastful.
It is true that the country no longer faces the economic emergency of a year ago, when it was on the verge of defaulting. In the past 18 months, two consecutive IMF bailouts worth $10bn, including the ongoing funding programme of $7bn, and rollovers of foreign loans of billions of dollars, have helped reduce economic uncertainty and created some semblance of stability. Market sentiments are also upbeat, as reflected at the bourse, which is breaking record after record, and macroeconomic indicators are improving rapidly.
Yet, the short- to medium-term growth outlook is bleak: the government does not have a credible economic plan that goes beyond IMF-mandated goals and debt rollovers to drive robust growth without pushing the country into yet another balance-of-payments crisis. Apparently, all except our policymakers can see that the IMF programme is needed but is not enough for recovery and growth.
The country needs a comprehensive reform strategy outside the IMF bailout framework to address persisting structural imbalances and pave the way for growth — without triggering another crisis — if it wants to exit the debt trap, alleviate rising poverty, and end soaring unemployment.
Curbing the fiscal deficit, for example, should be on top of the government’s long-term growth agenda. It would involve sincere efforts to bring the untaxed and under-taxed segments into the revenue net, ending exemptions to powerful lobbies and ensuring tax compliance.
Besides, it should focus on slashing wasteful expenditures and accelerating the privatisation process. The other plank of this strategy should be the creation of an environment where businesses are not worried about sudden policy changes or massive regulatory burdens, and where local and foreign investors are treated equally. Private investment is crucial to boosting both industrial and agricultural productivity to increase non-debt-creating export inflows.
However, it should be noted that no economic strategy will work in isolation; plans should be part of an overarching ecosystem where innovation is encouraged, courts are allowed to act independently, and the government invests heavily in education and health to develop human capital that can keep pace with technological advances. But so far, the government has been in firefighting mode, basing all its future economic plans on promised investments from China and Saudi Arabia as well as other Gulf states, without realising that even friends can do only so much.
So long as the government does not realise that it needs to put its own house in order, growth will remain anaemic and the world will be reluctant to help.
