A very tricky question indeed. To begin with, Imran Khan has the determination, will, and intention to turn Pakistan into a surplus growing economy. However, to achieve an ambitious goal like this, one needs to have a vision, a strategic plan, and well-laid-out action steps that will take the economy from the current state to the desired state. I don’t see Imran Khan and his team doing anything substantial efforts in that direction. The Government at the moment seems to be firefighting. Well, the state economy inherited by Imran Khan from the previous regime warrants such firefighting to put the house in order first before embarking upon an ambitious program of Economic Revival. The economy is currently on a ventilator and any misjudgments or miscalculations will have a long-term disastrous impact leading to the country going bankrupt and declared a failed state. The problems faced by the Imran Khan Government relating to the economy can be summarized as under.
The change in the public debt under this government is due to a correction of the flawed economic policies of the previous regime, especially its overvalued exchange rate and excessive borrowing.
The increase in debt during the tenure of the present government occurred mainly during FY19 as an unavoidable consequence of erroneous policies of the previous government. Had the previous government maintained a market-based exchange rate, a sustainable level of current account deficit, adequate cash buffers, and a long-term domestic borrowing profile, the present government would not have had to make all these difficult adjustments and the public debt burden would have been reduced on the back of fiscal consolidation efforts of the present government supported by aggressive control on expenses and growth in tax and non-tax revenues. However, as most of the major adjustments to fiscal and monetary policies have been made, the Debt-to-GDP ratio is projected to decline over the next few years.
The flawed policies of the previous Government have also given rise to inflation once the USD/Rupee ratio was brought down from the manipulated ratio to the market mechanism. These have far-reaching impacts on the common man and need time to normalize. While the firefighting is going on the Government has also taken some important steps to turn the corner. Some important indicators are as follows:
1. Pakistan’s exports in March 2021 reached a decade-high of $2.3 billion with monthly figures showing growth year-on-year and over the previous month.
2. The current account deficit primarily stemmed from a jump in imports to over $5 billion in December 2020 after quite a long hiatus. … Cumulatively, in the first six months of FY21, the current account remains in surplus at $1.1 billion compared to a deficit of over $2 billion during 6MFY20,” the SBP said.
3. The Central Bank has been given full autonomy primarily for cutting interest rates to boost domestic demand.
A term of 5 year-term is not enough to tide over the current problems and also mount an ambitious economic revival. We hope that Imran Khan would be able to raise the economy from a totally negative status to ground zero and then embark upon a growth path in the next 5-year term. There are two main aspects of economic growth:
1. Aggregate demand (AD) (consumer spending, investment levels, government spending, exports-imports)
- Lower interest rates – reduce the cost of borrowing and increase consumer spending and investment.·
- Increased real wages – if nominal wages grow above inflation then consumers have more disposable to spend.·
- Higher global growth – leading to increased export spending.·
- Devaluation, making exports cheaper and imports more expensive, increasing domestic demand.
- Rising wealth, e.g. rising house prices cause consumers to spend more (they feel more confident and can remortgage their house)
- Aggregate supply (AS) (Productive capacity, the efficiency of economy, labor productivity)·
- The development of new technology, e.g. steam power and telegrams helped productivity in the nineteenth century. Internet, AI, and computers are helping to increase productivity in the twenty-first century.·
- Introduction of new management techniques, e.g. Better industrial relations helps workers become more productive.
- Improved skills and qualifications.·
- More flexible working practices – working from home, self-employment.·
- Increased net migration – especially encouraging workers with the skills that are in short supply (e.g. builders, fruit pickers)·
- Raise retirement age and therefore increasing the supply of labor.·
- Public sector investment – e.g. improved infrastructure, increased spending on education and healthcare
- The government can try to influence the rate of economic growth through demand-side and supply-side policies,
- Expansionary fiscal policy – cutting taxes to increase disposable income and encourage spending. However, lower taxes will increase the budget deficit and will lead to higher borrowing. The expansionary fiscal policy is most appropriate in a recession when there is a fall in consumer spending.
- Expansionary monetary policy (now usually set by independent Central Bank) – cutting interest rates can boost domestic demand.
- Stability. A key function of the government is to provide economic and political stability which enables the usual economic activity to take place. Uncertainty and political tension can discourage investment and economic growth.
Government supply-side policies
- Investment in infrastructure, e.g. new roads, railways lines, and broadband internet – increases productive capacity and reduces congestion.
- Privatization and deregulation – increase efficiency and productivity.
However, there are factors that are beyond Government control but it can certainly facilitate the process by providing a favorable environment.
Factors beyond the government’s influence
- The rate of technological innovation tends to come from the private sector and it is hard for the government to influence this.
- Industrial relations and workers’ motivation are driven by the private sector. The government’s influence on worker morale and motivation is limited at best.
- Entrepreneurs who set up a business are largely self-motivated. Though government regulations and tax rates can influence the willingness of an entrepreneur willing to take risks.
- The level of savings can influence growth. Higher savings enable higher investment, but it can be hard for the government to influence savings.
- Willingness to work. In the post-war period, the defeated countries Germany and Japan saw rapid rates of economic growth – reflecting a determination to rebuild after the war. UK economy had less dynamism – this could reflect different attitudes to work and willingness to introduce new ideas.
- Global growth exerts a strong influence on any economy. If the world enters a global recession such as due to Covid, it is very hard for an individual economy to avoid the costs.
While presently we see no signs of long-term planning for the revival and growth of the economy but we have witnessed sporadic moves for economic growth during the present two and a half years that have actually yielded some positive results as mentioned above. At the present stage, the Government is see firefighting to get the economy out of the ventilators. Once we are out of the ventilator, we know Imran Kham will divert all his attention in putting Pakistan’s economy back on the path of growth and reach its real potential. He needs qualified professionals and a dedicated team to create a new vision, prepares a strategic plan, set goals and objectives, shares it with the nation, and embark upon the action steps to achieve the goals and objectives.