Pakistan government must prove pro-poor credentials
What's pinching most of the consumers more is the withdrawal of subsidies and frequent increase in energy prices.
New York-based credit rating agency Moody's last week raised Pakistan's economic outlook from negative to stable on the back of the country's reforms. It is pleasing news, but stands in contrast to the squeeze being experienced in household budgets. Inflation is hovering above 12 per cent, according to the country's Bureau of Statistics. Moody's had lowered the country's outlook to negative from stable in June last year. It now sees the possibility of inflation gradually declining towards the end of the current fiscal year. Until that happens prices of food including tomatoes, wheat, milk, cooking oil, milk products - which make up a third of the overall basket used to calculate inflation - remains the main drivers behind the hike. What's pinching most of the consumers more is the withdrawal of subsidies and frequent increase in energy prices.
Prime Minister Imran Khan had come to power last year promising to eradicate poverty, create jobs, and build a welfare state. But the country's economy was weighed down by high debt, low taxation, low foreign currency reserves, weak growth, and poverty. Pakistan was forced to turn to the International Monetary Fund for a bailout again this year, its 13th since the late 1980s, with the central bank raising interest rates and freeing up the currency. The government is required to boost revenue to meet conditions of the loans. Imposition of pain on the people to avoid a balance of payment crisis - courtesy its large budget deficit (7.4 per cent of GDP in 2019-20) and public debt (76.7 percent of GDP) - has dented the government's popularity.
Now the economy is showing signs of stability with the fiscal deficit dropping by half to 0.7 per cent of GDP in the three months through September compared with the same period last year, the government data shows. The current account is in a surplus for the first time in four years in October. Government revenues have also increased slightly. Foreigners have invested about $1.2 billion into Pakistan Treasury bills since July after almost no inflows in the past two years. According to Bloomberg, Pakistan is leading the global stock market and so can attract heavyweight investors. It had plummeted to the lowest level in five years in August.
But there has been no letup in spiralling prices, driven by rising food costs. "The experience so far has been that food inflation has not unanchored inflation expectations," said State Bank of Pakistan Governor Reza Baqir in an interview. And the result is dismal for the people. "The poverty has already gone up from 36 to 40 per cent of population in Pakistan while 1.2 million have lost their jobs in the last one year. The IMF made projections on all macroeconomic fronts but its report remained silent on poverty and unemployment figures over the next three years," Dr Hafeez Pasha, a former finance minister said addressing a conference recently.
Pakistan has lived through now-rich, now-poor patches. Breaking repetitive cycles of instability and bailouts, the country now requires long-lasting structural transformation and modernisation of the economy featuring a simplified and better enforced regulatory framework and networked with the world as well as the region, especially with the countries it shares borders with.
Dr Gonzalo Varela, Trade Economist, World Bank, says that the share of exports in the GDP of Pakistan was one of the lowest in the region. He suggests provision of level-playing to exporters so they can enhance exports. The disparity between the rich and poor is too high. Poverty needs a solution beyond just welfare so that it can be done away with or reduced to minimum. A well-thought-out education, health and microfinance plan for the poor can change their lot.
The macroeconomic framework's health does comfort Pakistan's lenders. But it is the ordinary people, especially the poor, who the government should soothe. The bear hug of prices should ease on them now. The south Asian country needs to go for an innovative approach to economy; one that makes the country's kitty sustainable and forks its poor out of the morass they are in.
Waqar Mustafa is a Pakistan-based journalist and commentator associated with Jang Group of newspapers
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