Year of economic woes

Several major political stories and developments occurred during the course of year 2021. However, the outgoing year will be remembered solely for the economic roller-coaster that Pakistanis have had to endure. Worse still, the ride is still running, and we still don’t know if the conductor knows how to stop. It wasn’t supposed to be this way.

The calendar year started with genuine optimism. Pakistan had managed to get through the initial phases of the Covid-19 pandemic bruised but not battered. The economic impact of the pandemic was significantly less than regional countries and similarly developed economics; IMF funding was coming in; agricultural yields were generally above average; manufacturing and international demand for Pakistani products were on the rise; and we even had some money in the bank, so to speak, as the current account balance hit a record surplus.

But amid the swarm of pundits predicting an economic rebound, a handful voiced concern over several underlying problems that were not being addressed. Those factors included inflation and low investment. Inflation was concerningly high despite the poor economic numbers of 2020, meaning that, if unaddressed, it was bound to worsen as the economy grew. Investment, meanwhile, would remain low because new domestic growth opportunities were being created in wealthier nations because of the human and economic toll of the pandemic.

As the months began to change and the first signs of the current crisis began to rear their heads, we had rapid-fire changes at the helm of the finance ministry. The new team had novel solutions to problems such as low revenue generation — tax exemptions without any significant reforms.

Meanwhile, a convoluted trade policy left the country with record deficits month after month, leading the local currency to collapse. The rupee has lost about 18% of its value during the last six months. With oil and gas prices continuing to rise, it is unlikely that this crisis will be resolved any time soon. Even the government’s now-former wunderkind at the FBR, Shabbar Zaidi, recently warned that the economy would go down the drain if the current account situation was not addressed. He went to the extent of describing Pakistan as “bankrupt” and “not a going concern”. However, even if the current account situation is addressed now, the severity of the correction needed would have a much harsher impact than incremental change over the past 18 months would have had.

At the same time, the failure to get Pakistan removed from the FATF grey list is costing the economy tens of billions, according to a new study. The government blames this failure on international conspiracies, just as it blames all of the country’s economic woes on past governments. The people in charge genuinely believe they are without fault. Perhaps that is why the prime minister recently gave a speech wherein he touted the benefits of discredited ‘trickle-down’ economic theories, or why the finance minister keeps insisting the government is working on things rather than doing them.

Optimism will only drive us closer to the edge of the abyss. Tough decisions based on sound ideas are needed now, not tomorrow.

Published in The Express Tribune, December 29^th, 2021.

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