SUMMARY of the “2024: Rocky road ahead,” Shahid Kardar, January 13th, 2024
The article discusses the economic challenges faced by Pakistan as it enters 2024, despite some indicators hinting at a potential economic recovery. It highlights the disconnect between economic statistics, such as a primary and current account surplus, and the lived experiences of the public. The back-breaking inflation and stringent austerity measures under the IMF program have stifled growth and economic opportunities, contributing to rising unemployment and poverty levels. While annual remittances and the informal sector have sustained the economy to some extent, there is a noticeable impact on the lower-middle and middle-income groups. The article points out the acute external debt servicing problem, potential entry into the IMF’s program for the 24th time, and the challenges in maintaining social cohesion. Structural issues, including political instability, policy unpredictability, corruption in the rule of law, and a distorted tax regime, are identified as impediments to sustainable growth. The author emphasizes the need for a quality-focused fiscal correction that begins with restructuring expenditures, decentralizing governance, and modernizing systems. The conclusion underscores the urgency for long-overdue reforms, acknowledging the massive and painful task ahead, and questions the leadership’s ability to endure and implement enduring changes.
Easy/Short SUMMARY:
The article assesses Pakistan’s economic challenges in 2024 despite some positive indicators. It highlights the gap between economic statistics and the public’s experiences, pointing to the adverse effects of inflation and IMF austerity measures on growth, employment, and poverty levels. The external debt servicing problem and potential reentry into the IMF program pose significant risks. Structural issues, including political instability and a distorted tax regime, hinder sustainable growth. The author emphasizes the need for a quality-focused fiscal correction, restructuring expenditures, and urgent long-overdue reforms for enduring changes.
SOLUTIONS of The Problem:
Political Stability and Unity
Address political instability and polarization to create a conducive environment for economic reforms and growth.
Transparent and Predictable Policies
Implement transparent and predictable policies to reduce uncertainty and attract domestic and foreign investments.
Judicial and Legal Reforms
Enhance the rule of law by undertaking judicial and legal reforms to combat corruption and ensure accountability.
Public Sector Efficiency
Optimize public sector efficiency by reducing unproductive expenditures, streamlining organizational structures, and promoting a merit-based work culture.
Fiscal Prioritization
Reprioritize expenditures by focusing on asset maintenance, decentralizing functional distribution, and adopting the principle of subsidiarity.
Trade Promotion and Cross-Border Cooperation
Facilitate trade with neighboring countries, reducing transaction costs, and creating a more attractive environment for foreign direct investment.
Energy Sector Reforms
Address governance issues in the energy sector, reevaluate terms with Independent Power Producers (IPPs), and ensure affordable pricing for energy.
Human Capital Development
Invest in improving the quality of human capital through education and training programs to enhance workforce skills and efficiency.
Global Image Enhancement
Improve the country’s global image to attract foreign direct investment, focusing on creating a business-friendly environment.
Long-term Visionary Leadership
Foster long-term visionary leadership capable of distributing economic adjustment burdens equitably and staying committed to enduring changes.
IMPORTANT Facts and Figures Given in the article:
- Annual remittances amount to $30 billion, sustaining the economy along with the informal sector.
- External reserves are well below recommended levels, posing a risk to servicing external obligations.
- The country appears poised to enter the IMF’s program for the 24th time due to acute economic challenges.
- Structural issues hindering sustainable growth include political instability, policy unpredictability, and a distorted tax regime.
- The external debt servicing problem and potential reentry into the IMF program raise concerns about social cohesion.
- The country’s global credibility has been severely damaged, necessitating urgent and massive reforms for economic stability.
MCQs from the Article:
1. What is the potential consequence of the acute external debt servicing problem mentioned in the article?
A. Increased economic growth
B. Entry into the IMF’s program for the 24th time
C. Decreased unemployment rates
D. Enhanced social cohesion
2. Which factor is NOT identified as a structural issue hindering sustainable growth in the article?
A. Political instability
B. Policy unpredictability
C. High agricultural productivity
D. Distorted tax regime
3. What is emphasized as the need for economic adjustment in the article?
A. Short-term policy changes
B. Long-overdue associated reforms
C. External debt restructuring
D. Fiscal complacency
4. What poses a significant risk to servicing external obligations according to the article?
A. High external reserves
B. Reserves well below recommended levels
C. Budget surplus
D. Successful IMF negotiations
5. What is the suggested approach for fiscal correction in the article?
A. Increasing expenditures
B. Maintaining current spending patterns
C. Quality-focused anchored in the composition of the correction
D. Dependence on external aid
VOCABULARY:
- Nascent (adjective) (آغاز ہونے والا): Just coming into existence and beginning to display signs of future potential.
- Prognosticating (verb) (پیش گوئی کرنا): Foretelling or predicting a future event or trend.
- Back-Breaking (adjective) (کھینچیں ٹوٹنے والی): Extremely laborious, arduous, or physically demanding.
- Stifling (noun) (دبا کر رکھنا): Suppressing or preventing something from developing, progressing, or flourishing.
- Acute (adjective) (شدید): Present or experienced to a severe or intense degree.
- Excruciating (adjective) (نہایت تکلیف دہ): Intensely painful or distressing.
- Forbearance (noun) (صبر): Patient self-control and restraint in the face of provocation.
- Fabricate (verb) (جعلی): Invent or concoct (something), typically with deceitful intent.
- Polarisation (noun) (قطبی بندی): The division into two sharply contrasting groups or sets of opinions or beliefs.
- Solvency (noun) (قرض کی قابلیت): The ability of a person, business, or government to meet their long-term financial commitments.
- Conducive (adjective) (مدد گار): Making a certain situation or outcome likely or possible.
- Exasperation (noun) (برہمی): A feeling of intense irritation or annoyance.
- Reprioritising (verb) (ترتیب میں تبدیلی): Rearranging or changing the order of priorities.
- Rent-Seeking (adjective) (رینٹ کے لئے چاہتا ہوا): Engaging in activities to increase one’s share of existing wealth without creating new wealth.
- Imbued (verb) (بھرنا): Inspired or permeated with a feeling or quality.
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dawn.com
2024: Rocky road ahead
Shahid Kardar
THE most challenging year in recent memory has closed with some indicators prognosticating a nascent economic rejuvenation of sorts. So, what lies in store in 2024? Are the gloomy days now behind us that a possible rising tide from improved growth prospects will lift all boats?
The public at large cannot be expected to go into a trance on being informed that we have achieved both a primary and current account surplus. For them the fallout of back-breaking inflation and stringent austerity under the IMF programme has been a stifling of growth and economic opportunities. And that these factors combined with supply chain disruptions caused by administrative restrictions of imports have amplified the market manipulative powers of a minority class, eroding the purchasing power of large segments of the population.
For them, unemployment rates and poverty levels are rising. And, although growing, these rates would have been higher but for the annual remittances of $30 billion and the informal sector which have kept the wheels of the economy somewhat running. However, many in the lower-middle income group hovering around the poverty line, if unable to take on multiple jobs, have been pushed below it, while significant proportions of the middle-income group have been coping by adjusting their lifestyles or by running down available savings or by liquidating assets. A disturbing development is the loss of morale of the limited available quantity of the skilled. They are articulating their loss of faith in the future of the country by seeking any opening for an exit.
Meanwhile, an annual requirement of $25bn and reserves well below recommended levels are placing our ability to service external obligations increasingly at risk. The problem has become so acute that it may be too difficult to even deal with it through a reshuffling of maturities. The country, therefore, appears poised to be invited into the IMF’s parlour for the 24th time. The second round of stabilisation and austerity will, with the depletion of these buffers, be more excruciating. A worrying outcome of the ensuing weariness could be the worsening of the already fragile social cohesion.
Our ‘friends’ have lost patience with us and are no longer agreeable to doling out lifelines.
Our “friends” have ostensibly lost patience with us and are no longer that readily agreeable to doling out lifelines without a change of our behaviour, while multilaterals on whose benefactions we live from year to year are, although coming so lately and equally to blame, openly expressing their exasperation at our repeated abandonment of commitments on reform. Although our creditors are seemingly pondering over whether they should lend their names to our quest for international banker generosity so that we can live to borrow another day, they do not appear to be in the mood to pull the plug on our life support system, just yet.
A view fairly widely aired is that for pushing the economy onto a higher and sustainable growth path and attaining solvency much remains to be done to address the fundamental structural issues.
The list of these concerns is lengthy. It broadly includes political instability and unprecedented polarisation; the general state of uncertainty; policy unpredictability; a corruptible rule of law; bloated governments with their unproductive expenditures running wild; the huge footprint of the state in the economy (through profligacy, bankrolling loss-making inefficient SOEs and obsolete and excessive regulation) bludgeoning the fiscal accounts; different organs of the state crumbling with mechanisms of checks and balances in disarray (if not dysfunctional); a distortionary and predatory tax regime; lack of a sensible exchange rate policy; a system that continues to protect and support powerful “rentiers” at the expense of the economy’s competitiveness; unaffordable pricing of energy (because of the generous terms and conditions accorded to IPPs and continuing governance issues of DISCOs); lack of trade with our neighbours and high transaction costs of cross-border business; the restrictive regulatory environment and its cost (especially for investment whose rate now places us in the 130s among 151 countries); a country image unattractive for potential FDI; poor work culture/ethics and the weak quality of human capital.
It has been argued before in these columns that while the fiscal correction demanded by our donors is important, it is the quality anchored in the composition of the correction that is more important. The effort to achieve it must begin from the expenditure side of the fiscal equation. Today, resources are being increasingly absorbed in the maintenance of state operations and not even maintenance of assets. By reprioritising expenditures, decentralising functional distribution and organisational structures of different tiers of government based on the principle of subsidiarity, we can modernise governance systems, thereby reducing opportunities for rent-seeking and corruption, improving resource allocation, reducing management costs and enhancing administrative and work capacities and efficiencies.
To conclude, we can only be complacent in tackling the above referred perennial fault lines (by continuing to embrace a ‘business as usual’ approach) at our own peril. The emergency for embarking on the long-overdue associated reforms is upon us, since the state’s domestic and global credibility has been severely damaged. Since these problems have been accumulated over decades, the task ahead is a massive and long-drawn painful one, requiring a leadership (not visible to the naked eye today) with the vision and capability to distribute this pain equitably, based on the ability of the different economic groups to bear the burden of the required adjustment.
This would test the forbearance and determination of any leadership to stay on course, raising the obvious question whether the government likely to be assembled after the election will be able to fabricate the changes that will endure the test of time.
The writer is a former governor of the State Bank.
Published in Dawn, January 13th, 2024
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