Why Pakistan’s new finance minister should focus on growth-based development
The Pakistan Tehreek-e-Insaf (PTI) has plucked in yet another finance minister to weather the economic storm. This means that someone who has been hypercritical of PTI’s performance on the economic front now has to build upon the inherited reforms. The motive behind this appointment is to shift gears from stabilisation to growth; but, how can this be possible in an austere International Monetary Fund (IMF) programme?
Shaukat Tarin is likely to renegotiate the clauses of the IMF programme. The premise for relief from the unilateral lender could be the danger of a possible shock to the economy due to the surging cases amidst the third wave of the rampant virus. The eminent component of this sought after adjustment will be the exorbitant power tariff, which to an extent triggered the unceremonious exit of Dr. Hafeez Sheikh from the Finance Ministry. So, a relaxation on IMF’s stringent terms becomes the primary milestone for the incoming advisor.
Pakistan has witnessed recurring boom and bust cycles, with every successive government asking the IMF for a bailout. An initial couple of years are spent at resurrecting the economy out of the crisis after which the incumbents pay minimal heed to fiscal and monetary discipline in an urge to appease the masses with consumption-led, unsustainable growth. At the brink of elections, the economy moves into the same vortex on the external account again. This precedent of poor governance makes Tarin’s idea of a sharp uptick in growth look scary.
Besides, economic policies with a shallow aim of showcasing growth for public consumption are inherently flawed. It is important to understand how economic growth can ameliorate the lives of the people. Economic growth is a terminology used to define the incremental income a country is earning, the additional goods and services the citizens are relishing, or the extra aggregate expenditure they are making.
The developing world is likely to experience much higher catching up growth in comparison to cutting edge growth in the developed counterpart. So, if given a migrating opportunity, would you choose to move to a steadily growing Gulf country instead of America or any European country? Probably not. This means that the much-touted indicator is not the end of the story. Economic growth only benefits the public when it translates into development.
According to development economics, the reasons why a developing country does not develop much despite growth include poorly prioritised public projects, excessive corruption, and an over-expenditure on the military goods. The subject also talks of the oligarchic nature of many underdeveloped countries where the politicians intentionally keep the masses deprived of education because it leads to greater awareness and an augmented demand for welfare.
Pakistan’s case is no different. Even during the periods of elevated growth, the human development of the country remained lamentable. Consequently, the disparity between rich and poor widened with the rich becoming richer and the poor poorer. There are just 11.18 doctors in Pakistan for every 10,000 citizens (World Health Organisation). The situation is grimmer in India and Bangladesh with less than 9.28 and 6.37 doctors (per 10,000 people) respectively. However, Pakistan’s life expectancy hovers below the numbers reported by its neighbours. On the education paradigm, the expected years of schooling is 8.3 years against 12.2 years in India and 11.6 years in Bangladesh. The overall score on the Education index is 0.402 in 2019 compared to India’s 0.555 and Bangladesh’s 0.529. All of this puts Pakistan on the 154th rank in the United Nations Development Programme’s (UNDP) Human Development Index (HDI).
Hence, the go-to approach should be one which holistically entails exports-driven growth, monetary independence for the State Bank of Pakistan (SBP), manageable current account balance and a transition to a free market in food commodities in a bid to tame supply-side inflation. The proceeds of this sustainable growth should be sizably devoted to improving the state of public hospitals, dispensaries, schools, and colleges together with enlarging the scope of social protection and poverty alleviation schemes like Ehsaas and Benazir Income Support Programme (BISP). This will not only improve living standards but also make the economy more resilient to shocks.