Rosy economic projection
The government is claiming that the economy has turned a corner, saying in a new report that the budget and current account deficits have been brought down to manageable levels, and that the ground is set for increased economic growth. The report is surprisingly optimistic, especially since it was released a few days after a UNDP report warned that growth would be extremely low, the World Bank’s Pakistan director said the country’s economic model is not working, and several Pakistani economists cast doubt on short-term investment and growth potential.
Some discrepancies are obvious. The Finance Ministry’s monthly economic outlook report says inflation will settle at a “moderate level”, while admitting that it will still be around 25% in January. That is still objectively very high and unsustainable for an economy in dire need of investment. It is also worth noting that the reduction in inflation is contingent on a stable rupee and declining international prices for fuel and other key imports. While it is good news that the so-called twin deficits are indeed reducing, policymakers still have a lot of work to do to bring widespread benefit from these improvements. Historically, benefits associated with these reductions only present themselves when the right policies are in place, and while some necessary reforms have been introduced, we still need to do a lot of work to fix the agriculture and energy sectors, according to the World Bank’s country director.
The government is also still not in a position to spend to encourage growth, because after using 82% of net federal income on interest payments alone, there is barely enough left to pay salaries and other expenses, let alone finance development work. One solution could be increasing government revenue through progressive tax measures, but the political will to follow through on this is always lacking because the rich and powerful refuse to pay their fair share. But realising economic growth potential now requires fairly taxing the rich instead of squeezing everyone else.
Published in The Express Tribune, December 31st, 2023.
Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.