SUMMARY of the Article “Economic Growth,” by Rashid Amjad, Dawn, December 3rd, 2024:
The article provides an analysis of Pakistan’s current economic trajectory, highlighting signs of stabilization such as the PSX share index surpassing 100,000 points, a stable rupee-dollar exchange rate, and inflation plummeting to 6 percent, aided by global factors like post-Covid economic adjustments and stable oil prices. Despite these optimistic indicators, Rashid Amjad raises critical concerns about whether this stability will translate into sustainable high economic growth or lead to a stagnation trap. Challenges such as the government’s failure to honor commitments like minimum support prices for wheat have exacerbated rural poverty, compounded by subsidy cuts and rising unemployment. The looming risk of recession due to compressed aggregate demand and a potential collapse in the housing market mirrors economic crises seen in other countries like Japan and China. Global uncertainties, including potential trade wars stemming from Donald Trump’s policies, add external pressure. Pakistan remains vulnerable due to its precarious foreign exchange reserves, unmet foreign investment promises, and an over-reliance on debt rollovers. The article critiques Pakistan’s stagnant 3% growth rate, insufficient to address poverty and malnutrition, compared to India’s consistent 7% growth. Emerging sectors like IT and AI show promise but face hurdles due to weak tax compliance and political instability. The author emphasizes the need for a political détente to resolve interdependent political and economic challenges, calling for lessons to be learned from past missteps to achieve meaningful growth and poverty alleviation.
Easy/Short SUMMARY:
The article discusses Pakistan’s improving economy with stable inflation, a strong stock market, and steady currency exchange rates. However, it warns that this stability might not lead to lasting growth. Problems like rural poverty, unemployment, and subsidy cuts are rising. Pakistan also faces global risks, such as trade wars and weak foreign investments. The current 3% growth rate is too low to reduce poverty, and emerging sectors like IT and AI need more support. The writer stresses that solving political conflicts is crucial for economic progress.
SOLUTIONS of The Problem:
Promote Agricultural Stability
Ensure farmers receive promised minimum support prices for crops and provide subsidies to protect rural livelihoods.
Strengthen Housing Market Policies
Introduce measures to prevent a collapse in the housing and real estate markets, such as affordable housing schemes and low-interest loans for developers.
Enhance Tax Compliance
Implement robust reforms to increase tax collection from the elite and improve the system’s transparency, ensuring funds are available for development.
Support Emerging Sectors
Invest in the IT and AI industries through government incentives, infrastructure, and skill development programs to drive economic growth.
Expand Social Safety Nets
Increase income support programs for the poor and provide targeted subsidies for essential goods to reduce poverty.
Attract Foreign Investment
Create a stable and business-friendly environment to attract foreign investors by addressing political instability and ensuring legal protection for investments.
Diversify Exports
Focus on diversifying exports to reduce dependency on a few sectors and build resilience against external shocks.
Bolster Foreign Exchange Reserves
Secure timely debt rollovers and foreign investments while reducing reliance on external borrowing.
Mitigate Global Risks
Develop contingency plans to handle potential global economic downturns and trade wars, ensuring minimal impact on Pakistan’s economy.
Political Détente for Economic Progress
Encourage political leaders to resolve conflicts and create a collaborative environment for long-term stability and economic reforms.
IMPORTANT Facts and Figures Given in the Article:
- PSX share index crossed 100,000 points for the first time.
- Inflation reduced to 6% from near double-digit projections.
- Current account deficit turned positive due to increased exports and remittances.
- Growth rate targeted at 3%, insufficient to tackle rising poverty and malnutrition.
- India posted over 7% growth in the past three years.
- Foreign exchange reserves can only cover less than three months of imports.
MCQs from the Article:
1. What is the current inflation rate in Pakistan, according to the article?
A. 10%
B. 8%
C. 6%
D. 3%
2. What major milestone did the PSX share index achieve?
A. Crossed 100,000 points
B. Dropped to 90,000 points
C. Reached 75,000 points
D. Fell below 50,000 points
3. Which sectors are identified as drivers of economic growth?
A. Textile and agriculture
B. IT and AI
C. Real estate and tourism
D. Energy and mining
4. How much growth is targeted for Pakistan this year?
A. 7%
B. 5%
C. 4%
D. 3%
5. What is a key recommendation to resolve economic challenges?
A. Increase reliance on subsidies
B. Achieve political détente
C. Remove export incentives
D. Impose stricter housing policies
VOCABULARY:
- Stabilising (مستحکم کرنا): Making something more steady or secure.
- Speculation (قیاس آرائی): The act of forming theories without firm evidence.
- Albeit (اگرچہ): Although or even though.
- Remittances (رقومات): Money sent back home by people working abroad.
- Spurt (اچانک اضافہ): A sudden increase or burst of activity.
- Conundrum (معمہ): A confusing and difficult problem or question.
- Subsidy (امداد): Financial aid provided by the government to support economic sectors.
- Aggregate (مجموعی): Formed by combining several individual elements.
- Milieu (ماحول): A person’s social environment.
- Détente (کشیدگی میں کمی): The easing of hostility or strained relations.
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Economic growth
Rashid Amjad
THERE are indeed signs that the economy is stabilising. The PSX share index has, for the first time, crossed 100,000 points. The rupee-dollar exchange rate has remained stable over the entire year despite speculation to the contrary. The inflation rate has come tumbling down to around six per cent when even the most optimistic projection was of near double this number. The recurring dreaded current account deficit has turned positive with a spurt in exports and a windfall rise in remittances, albeit with controlled imports.
These are all positive developments. But will this trend continue? Most importantly, if it does will it ignite sustained high growth, or as is the case with many developing countries, will it end up in the low-growth equilibrium trap of macro stability without growth?
While the government has taken full credit for stabilising the economy, these developments are of course not just the result of its efforts. To start with, the slowing down in the rate of inflation is global after the end of Covid-19 which sent consumers on a worldwide spending spree. This decline has also been helped by stable oil prices.
As to the stock market, it is firmly in the hands of a few speculators. And past booms have fizzled out at the same speed as stocks have climbed! In any case, hardly any new companies have been listed on the stock market over the last year.
Even if the economy stabilises, will it ignite higher growth?
The increase in remittances is indeed welcome but the government should beware that amongst its most likely causes is the return of poverty to Pakistan after nearly two decades of its declining, a situation worsened by the current government policy of not fulfilling its commitment to buy wheat at a minimum support price and pushing up rural poverty as prices fell to half this promised price. As growth slows down and subsidies on essential items are removed, unemployment and poverty will rise further and the government will be hard-pressed to find the resources to increase direct income support to the poor.
There is then always the fear that as stabilisation measures kick in and aggregate demand is compressed, the economy could slip into a deep recession. The lull in the housing and real estate market if it collapses could create a vacuum which could push the economy in this direction as the collapse of the housing market had done earlier in Japan and more recently in China. This will push the government into a conundrum, leaving it little room for manoeuvre given the tight fiscal constraints the IMF programme has imposed on it. The government should be prepared for such an eventuality.
On the external front, there are already serious concerns building up of global economic uncertainty as Donald Trump takes office next month. While the dollar will, in all probability, strengthen given his announced trade curbs on imports from China, Canada and Mexico in the first instance, a major trade war can erupt with each economy adopting policies designed to protect its own interests. As in the past, this could trigger a global recession which would hurt developing countries including Pakistan.
We must also remember that despite improvements in our current account balance we are still vulnerable to external shocks. We possess under three months of foreign exchange reserves to finance imports and a significant gap this financial year in the foreign exchange external balance (including debt repayments). Despite high expectations, foreign investment (Saudi Arabia) and promised debt rollovers (China) have still not materialised.
The real question is that even if the economy stabilises as it has many times before will it ignite higher growth with poverty reduction?
The targeted 3pc growth for this year is less than half of what the country needs, in view of its population and labour force, to make a dent in rising poverty and malnutrition. Though growth is expected to pick up in subsequent years, it will still be much less than required and much lower than what India has posted (over 7pc) in the last three years.
There are some emerging green shoots (for example, IT and AI) which could serve as drivers of economic growth. But it is already difficult to get our ruling elite to pay their due taxes and well-nigh impossible to get them, or for that matter any foreign investor, to risk investments in the current political milieu. Few can blame them after the recent events.
The only way to get out of the interdependent political and economic dead ends is a political détente, or what former senator Mushahid Hussain has termed a ‘cooling off’ period, in the current confrontation between the major stakeholders. But have we ever learnt from our past mistakes?
The writer is professor at the Lahore School of Economics and a former vice chancellor at the Pakistan Institute of Development Economics.
Published in Dawn, December 3rd, 2024
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