Necessary pain

Our economy has so many structural flaws that fixing it is impossible without the nation suffering significant pain.

When it comes to economic growth, there is one bitter truth that is rarely acknowledged by policymakers, citizens or the media: our economy has so many structural flaws that fixing it is impossible without a significant amount of pain being felt by large swathes of the population. The Asian Development Bank’s announcement that it is lowering its forecast for Pakistan’s economic growth rate is an acknowledgment of that fact. A three per cent growth rate for a developing economy like ours is abysmal, but given the fact that the country’s economic management has effectively done almost nothing for the past six years, there was never going to be an easy way out of the current morass. How the country, as a whole, and particularly the Nawaz Administration, reacts over the next few months is going to be critical.

In the past, we have made no secret of our objections to several elements of the International Monetary Fund’s (IMF) bailout programme and the conditions that accompany it. However, flawed as it is, it reflects a step forward for the economy and must be followed. The IMF’s conditions are a potentially useful disciplinary tool to keep the government’s energy policy on track. The IMF programme has been criticised for causing economic growth to slow down. This is a legitimate criticism, but the pain being felt now will be worth it, provided the nation sticks with the medicine being prescribed. There are too many structural imbalances that need to be corrected and doing so requires taking, at least, some actions that will cause a temporary slowdown. The economy needs to create far more jobs than it currently does in order to absorb the youth bulge. But in order for the economy to have a sustainable ability to keep on creating jobs, we need to get our fiscal house in order. In the short term, that means a contractionary cut in spending. It may be unpleasant, but it is necessary.

Published in The Express Tribune, October 6^th, 2013.

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