We were starting to enjoy a welcome festive atmosphere, created by a slight economic recovery and a promising improvement in some high-frequency domestic demand indicators. However, rising external deficits and inflation have somewhat overshadowed this premature jubilation.
Borrowing loans and deferring energy payments to build up reserves, although necessary in the eyes of policymakers, as a signal to calm market disruptions is not a financially viable option because ultimately these liabilities must be reimbursed with interest.
What we need now is to focus more on implementing the right policy calibration to ensure the resilience of the economic recovery, keep inflation expectations anchored, and curb the rise. continuing trade and current account deficits.
The economy remains hostage to unsustainable episodic growth – a difficult situation that we must recognize and think carefully about how to overcome. Pakistan can no longer afford not to shift from its economic management of firefighting to seismic structural changes. This alone is the path to national economic prosperity – anything short will keep us in the precarious condition of perpetual cycles of boom and bust, harming the nation. We are in a phase where the risk of doing too-little-too-slow far outweighs the risk of doing too-too-quickly.
We can reimagine the way we introduce political and structural reforms. Economic reforms anchored in international best practices or certain standard competitiveness indices have not worked so far. Such an approach has distorted our priorities, sometimes posing an unimaginable reform agenda.
We must be able to define the objectives of such reforms and determine a path to achieve them in our given context. In this way, we should not rely on outside help, but follow a more endogenous position.
Looking to growth for long-term economic well-being is a noble thought. However, for it to be sustainable, it must be supported by the creation of a well-regulated market economy where state institutions effectively regulate, the executive makes economic policy and is responsible for governance, and a vibrant private sector. is in charge of business. operations. Our mental model of growth thus becomes that of investment and productivity, carried by all the economic agents participating in the various economic activities.
One of the main constraints to the development of competitive markets in Pakistan has been the large and ever-expanding government footprint. A good place to start is to undertake a major divestment effort – outright sale, management contracts, global certificates of deposit, initial public offers and secondary public offers.
Divestment can have a fourfold effect: alleviating short-term funding problems; create space for the private sector; increase investment choices in the stock market; and, above all, to signal to the world our seriousness for business rather than for borrowing.
Reconfiguring Pakistan’s energy sector can secure our future. Our end goal should be an energy market where energy is traded as a commodity and where competition and efficiency drive down the unit price – which the country has successfully done in the telecommunications sector. We must be tempted to declare an “energy emergency” to accelerate political goals in months – not years – through divestment; liberalization of the electricity market to allow a multi-buyer and multi-seller model; the supply of electricity on a prepayment basis; strengthening of a supply and demand management system; and increase demand for electricity to lower tariffs.
Likewise, in the gas industry, divestment through outsourcing of retail management can help manage unaccounted for gas losses and control theft. The country can move to a single consumer tariff, based on a weighted average gas cost, build the north-south pipeline, let the private sector set up RLNG terminals and storage units, and remove barriers to gas. ‘acceleration of natural gas drilling activities. To prepare the two Sui companies for the sale, it is necessary to think of leaving the model of return on assets.
The agricultural sector needs pricing to be left to the market, with the government gradually withdrawing from the wheat and sugar markets. Perishable waste, estimated at nearly a third of total production, requires a gigantic effort to modernize logistics. Increasing productivity is possible by making the registration of companies providing seeds through the Seeds Act mandatory and ensuring that they label their products correctly to fill the information gap. A complete overhaul of the registration process can speed up the approval process for new varieties and reduce the government’s footprint. Appropriate pricing of irrigation water can encourage an efficient cultivation model.
Decades of biased investment incentives focused on real estate have taken away people’s zeal to find productive avenues of investment, including stock markets and small businesses, in addition to making land unaffordable. In the longer term, it robs people of their inherent ability to research, invent and innovate. We can move to an incentive framework for productive investment – labor-intensive businesses.
The current distress in the external sector is mainly due to our reliance on a narrow range of commodity exports – this must change. Stimulating exports also means increasing the productivity of Pakistani companies. Productivity improvement strategies – promoting competition and innovation – can maximize a country’s export potential. Barriers to entry and existence have a negative impact on our businesses.
Policymakers should also adopt risk-based assessment models; high risk businesses should be categorized according to relevant regulations and medium and low risk businesses should be left to self-report for compliance issues. The idea is to undertake sweeping reforms by removing a large part of trade regulations, as complementary regulatory reforms such as the regulatory guillotine take time to gain traction.
Some of the ideas developed above have been explored over time. Unfortunately, the scale and quality of a coordinated plan needed to produce meaningful results remains unsatisfactory. We are still a long way from shaping a well-functioning market economy in which efficiency leads to a controlled long-term inflationary environment and where consumers have a wide choice. Another obstacle to productivity-driven growth is writing the history of Pakistan’s technological catch-up, which we’ll leave for another day.
Our choice is clear. It is either an outdated, tired and slow economic policy reform, with its obsolete dependence on real estate, borrowed resources, rationed invention and opposition to disruption, or ‘a new alternative, determined to develop the agricultural and industrial sectors, increase productivity and wages, and let Pakistanis find their own path to prosperity.
The author is a former advisor to the Ministry of Finance of the Government of Pakistan.
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