No room to err in 2023
PHOTO: FILE
The year 2022 has been full of political and economic surprises. There are hardly any silver linings to credit policy makers. While a 6% GDP growth was touted as success, but its fragility was tested immediately to ambush any claims of economic resilience.
In a nutshell, delayed and imprudent economic decision-making has come at the cost of prosperity of tens of millions of people. The tug of war and outright rejection of political opponents’ policies have rendered investors clueless and dismayed. Scores of unemployment is being reported, and with the desperation rising, a new wave of capital and brain drain is being witnessed.
There are two core areas of improvement in a post Covid world – double digit exports and the growth of remittances. Tremendous efforts were put in to attract overseas capital with innovative solutions like the Roshan Digital Accounts (RDAs) and Naya Pakistan Certificates. Although there could have been more targeted Temporary Economic Refinance Facility (TERF) financing and affordable energy enabled export industries to reinvest again. Those have now been U-turned.
For the incumbents, the clear focus has been survival. Delayed revocation of the energy price freeze, a reluctance to enact structural reforms and unpopular decisions, all pushed the country to the brink of default. Though, friendly countries have bailed us out quite a bit, under the strict monitoring of the International Monetary Fund (IMF), but that’s not enough.
We had hoped to receive aid and toyed with the idea of debt restructuring under devastating floods, but the strategy is backfiring. Spending on reconstruction work is coming at the expense of a commensurate cut in development funds and increased taxes. The IMF is in no mood to show additional leniency.
Knowing very well that even the new government will have to secure a longer, front loaded and equally challenging IMF programme, the lender is having it his way and rightly so. Diplomacy might push us a few metres, but the journey has to be home-grown.
Unfortunately, in the year 2023 there are challenges aplenty. First, the government has to secure the IMF’s 9th and subsequent reviews. Secondly, further debt rollovers are needed from friendly bilateral and commercial lenders. Bond markets are shut at the current elevated credit rates and thus options are fairly limited.
The global recession’s impact on crude oil has been a blessing in disguise for Pakistan, again. This is a timely opportunity to enhance General Sales Tax (GST) and Petroleum Development Levy (PDL) without a further imposition of new taxes. Howsoever indirect, there is no other way to meet the fiscal deficit in the wake of higher interest costs.
What’s imperative today is to completely block luxury, finished goods for the elite and upper-class consumption. Further taxes can be placed on elites to deter dollar outflows for medium term. The real-estate, traders and agriculture are other sectors that can be squeezed further to generate adequate taxes to fund social safety and debt reduction.
Priorities for the current policy makers are to work collectively with all stakeholders to steady the boat. There are hues and cries from every segment of the economy that is costing political capital for sure – but if the Pakistan Democratic Movement (PDM) coalition can shore up the dollar reserves, keep the rupee steady, pave the path to a declining interest rate, successfully conclude the IMF programme and show austerity teaser despite pressure for election spending, they have a good campaign to look forward to.
Democracy warrants all political forces to present a charter of economic plans to the masses before any electioneering jalsa and verbal tit-for-tats. Slogans such as incompetence, neutrals, selected, imported, conspiracy etc do not do justice to the people’s expectations who are only craving sustainable prosperity.
Global political machoism can also wait until we grow 5% every year for 25 years. Indonesia is what we can aspire to follow; the Chinese miracle is too ambitious for our standards. The year 2022 was as unpredictable as Pakistan’s cricket team. Let’s aim to plan a bit better and rise steadily in 2023. We have too many oppressed people to whom we are answerable.
The writer is an independent economic analyst
Published in The Express Tribune, December 12th, 2022.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.