There is absolutely no doubt that the average Pakistani understands the meaning of economic reform and how it will benefit the masses at large. In the wake of soaring inflation, it is often challenging for a common man to get two decent daily meals while earning $2 a day. With never ending government borrowings, and bleeding public sector organizations that are burdened to provide employment to mostly incompetent political workers, it is difficult to visualize the route to economic reform in Pakistan.
Recent floods caused an estimated loss of $10 billion to crops and industries that depend on agriculture and mounting inflation of over 15 percent. For a small daily wage earner, when cost of goods increases, liquidity becomes a challenge to quality of life. In the current economic situation and with the feeble economic activity, workers are not in position to increase labor supplied.
The Pakistani State Bank yesterday, while announcing the monetary policy, expressed concerns over increasing government borrowing, inflationary pressure and lack of government’s interest in economic reform. One worrisome point raised by the State Bank is the reduced competitiveness of Pakistani exports, which in the medium term might impact the ability to earn foreign currency for spending on direly needed imports.
There is no doubt that Pakistan badly needs massive economic reform. The process should have started as soon as Pakistan government decided to go to the IMF for emergency funds. Their justification for doing so was that without a $11.3 billion loan, the Pakistani economy would collapse. Yet after having received almost 75 percent of the amount committed by the IMF, the process of economic reform seems stagnant. In November last year, Pakistan’s Finance Minister Dr. Abdul Hafeez Sheikh told the Pakistan Development Forum about reducing energy subsidies and bringing forth tax reform, unfortunately, the government faced extreme pressure after a recent increase in fuel prices. Consequently the government put the tax reform process on hold (and they also reversed fuel prices). Their actions resulted in putting the further $3.5 billion IMF funds on hold too, hence the danger for a collapse remains.
Key political parties have recently released economic reform agendas (here and here). These parties feel that this fits into the overall economic agenda of the PPP government. PML-N leader, Nawaz Sharif feels that his 10 point agenda can be implemented in 45 days. The Pakistani finance minister disagrees.
As far as the implementation process is concerned, there seems to be a major difference between ruling party and other political players. Talking to media last week, Pakistani Prime Minister Yousaf Raza Gilani said, “I don’t have a political threat, I have an economic threat and I am 200 percent sure that we will overcome it.” He continued, “Giving deadlines is not appropriate. Things take time…and they get done in due course.”
In various TV discussions, Pakistani economic commentators believe that the Prime Minister could have announced some quick fixes such as reducing government expenses and stopping unchecked hiring in public sector organizations, but his statement puts doubts at government’s ability to reform Pakistan’s economy, reduce internal and external debt, check inflation, improve employment opportunities and provide a competitive market for the private sector to play its role in the development of the country.
Having said that, most encouraging development was that the leading political parties are now talking beyond power negotiations, there is a feel for democracy here and perhaps for the 2nd time after the 18th amendment which removed the power of the president to dissolve the parliament unilaterally, these parties are talking alike.
The real challenge might be to bring political parties on a common ground for economic reform and improve the government’s willingness and capacity to deal with such issues.
Published Date: February 02, 2011