Sunday, January 17, 2021

Pakistan’s Economy at 2030

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Pakistan’s economy has seen a somewhat ceaseless cycle of small to medium term booms and busts over many decades, mainly at the back of short-term planning and continuing to remain primarily a consumption- and import oriented economy, with low value-adding exports, neoliberal-styled limited and least regulating governments, and one with overall low quality of economic institutions.

Coupled with years of country riding high tides of terrorism onslaught – and only to be tamed in recent years – and political instability, especially in terms of lack of consensus between government and opposition on even a minimum economic reform agenda – apparently by design by the collusion of politico-economic elites to perpetuate elite capture and in turn, extractive institutional design – resulting in rising income inequality and poverty levels; all leading to low per capita incomes, and poor quality, non-inclusive democracy.

Even if such daunting reform needs were not enough, the lack of global focus on effectively dealing with the tyranny of neoliberal agenda, which took the centre-stage almost four decades ago and that wrongly minimized the entrepreneurial, regulating and welfare role of government. The world is now facing a fast-approaching existential threat of climate change; the pace of which was quickened significantly by neoliberal policies.

Read more: Yes, the world economy is collapsing!

Pakistan is fifth in the list of countries to be most affected by this environment changing phenomenon. As a corollary of the workings of neoliberalism and climate change, the world is going through Covid-19 pandemic, which once again shows the enormous task at hand for the world in general and Pakistan in particular, especially with regard to providing the needed large fiscal stimulus at least through the medium term, and effectively dealing with the burgeoning level of an already high level of debt. Hence, there is an urgent need to change the way policymakers have thought about the environment, economy, and the role of government.

There is a need for a ‘great reset’ to mark the shift from a ‘pre-Covid’ world to a ‘post-Covid’ one, and which will mark as the ‘new-normal’ entering the 2020s. This, for instance, is elaborated upon by Klaus Schwab, founder and currently, executive chairman of World Economic Forum (WEF) as, ‘Many of us are pondering when things will return to normal. The short response is: never… Nothing will ever return to the ‘broken’ sense of normalcy that prevailed prior to the crisis because the coronavirus pandemic marks a fundamental inflection point in our global trajectory… Now is the historical moment of time not only to fight the… virus but to shape the system… for the post-corona era’.

Read more: Devolution in Pakistan: Issues and way forward

Policymakers in Pakistan will, first of all, have to understand that going back to the pre-Covid world is not desirable. A new normal should avoid going on with the same faulty approach to economic policy and the overall role of government, and more than anything because such neoliberal policies that exacerbated the charge of climate change, and pushed the world into facing the current pandemic could never be taken as normal; not to mention the rise of xenophobia, political-radicalization and polarization on one hand, and rising income inequality on the other.

Hence, Pakistan at 2030, especially in terms of its economy will be determined on how smart and quick the break its policymakers make from the dangerously deep downsides of current economic policy in the shape of the tyranny of neoliberalism, and resultantly a rather weak presence of government.

Therefore, it’s first aim is to rationalize the role of government so that it should formulate policies that help the world meet the targets set under the Paris Declaration 2015 to fight against climate change and global warming. This would require a set of policies, particularly in terms of a carbon-tax and green finance, to incentivize a shift away from fossil fuel usage to hydel energy and renewables.

Read more: Pandemic jolts governments away from Neoliberalism

Secondly, the PM resolves to make the country industrialized and achieve an export-oriented economy. This would primarily require improvement in political and economic institutional quality so that the right kind of environment in the shape of incentive and governance structures are provided to underlying organizations and markets. Thirdly, a concerted effort will have to be made to bring reforms that allow reaching true price signals in both the goods and services markets, and that dismantle the elite capture and underlying extractive institutional design, to an economy and overall policy formulation that is a lot more inclusive and that provides equal opportunities to economic agents.

In addition, macroeconomic policies should try to find a balance between aggregate demand and supply side policies; where austerity policies should not be overused to avoid sacrificing a lot of economic growth for a little, short-term macroeconomic stabilization. In particular, to enhance productivity and reduce the costs of doing business or overall ‘transaction costs’, which are important ingredients for industrialization and enhancing exports, once again would require reformed institutions or ministries for all practical purposes.

The current decade should bring out the role of government as one that enables the country reaching an ‘entrepreneurial state’ during the decade. Renowned economist, Mariana Mazzucato in her book ‘The entrepreneurial state: debunking public vs. private sector myths’ discusses this approach to state functioning as, ‘This conventional view of a boring, lethargic state versus a dynamic private sector is as wrong as it is widespread… in countries that owe their growth to innovation – and in regions within those countries, like Silicon Valley – the State has historically served not just as an administrator and regulator of the wealth creation process, but a key actor in it, and often a more daring one, willing to take risks that businesses won’t. This has been true not only in the narrow areas that economists call ‘public goods’ but across the entire innovation chain…’

Read more:The shortcomings of IMF programme – Dr. Omer Javed

This is also important for the country to transform its labour to be ready for meeting the requirements of the ‘jobs of tomorrow’ resulting for the current unfolding of the fourth industrial revolution, and primarily within it the age of artificial intelligence; low-skill labour force will not allow the country to meet the challenges of the 2020s.

Moreover, as Mariana rightfully points out, ‘Transformational public investments were often fruits of “mission-oriented” policies, aimed at thinking big…’. Governments in Pakistan will have to think big in terms of the role of public policy and investments, if they wish to avoid going back to International Monetary Fund (IMF) programmes, build foreign exchange reserves, upgrade the value of its currency tremendously, lift people out of poverty, reduce income inequality, fix markets, and provide the right kind of platform for private sector involvement in the economy. These are some of the main goals to be achieved if the country wishes to enter the column of advanced countries by the end of the decade.

Quality of public service will play a key role, for which the current narrow civil service regime will most likely not be able to deliver on the challenges at hand. After all, one of the main ‘players of the game’ in institutions, organizations, and markets are and even more so, need to be the public servants, bringing to fore the needed administrative, technocratic, and innovative skills set that an entrepreneurial and welfare state requires. Hence, as part of the overall ‘new normal’ requirement, it would make sense to do away with the current civil service and government service bifurcation and to have one public service, with fast and routine streams, and in two areas of administrative and technocratic areas of expertise.

Read more: Where is the discussion on policy? – Dr. Omer Javed

The current pandemic has also questioned the way multilateralism has worked over many decades now, seemingly lopsidedly favouring rich/powerful interests, through the neoliberal-styled orientation of Bretton Woods institutions, and also of World Health Organization (WHO) and World Trade Organization (WTO) – especially as evidenced recently through the phenomenon of vaccine nationalism, and involved inequality being seen in the way rollout prioritizes countries for large-scale delivery – it is important that the country contributes actively to present the case of developing economies in revisiting the current rules of multilateralism, as well as to look to forge new regional alliances at a much enhanced level.

Given the political tensions traditionally, especially with India of not just Pakistan but of some other countries in the region as well, SAARC (South Asian Association for Regional Cooperation) has underperformed over the years. As things stand, the same is likely to continue at least in the medium term. This should mean Pakistan looking to build greater ties with CARs (Central Asian Republics) and with countries on the same geographic belt could mean further enhance engagement with Iran and Afghanistan.

Along with even greater economic engagement with China – which according to WEF will be the largest global economy by 2024 – this group could result in a much more productive and needed regional economic block, especially in terms of energy and trade. Perhaps, the new economic block could be called ‘CARPIAC’ (CARs, Pakistan, Iran, Afghanistan, and China).

Read more: Naya Pakistan’s mixed economic policy signals? – Dr. Omer Javed

To meet the needs of a large population, growing at a reasonably fast pace, and demographically containing a high proportion of ‘active’ population, and to safeguard the future generations from the onslaught of climate change and pandemics, the current decade requires sustainable, innovative and active policy stance of governments in Pakistan, especially if it wishes to join leading economies by the end of the decade. Overall, a prosperous world and Pakistan at 2030 require formulating a workable and pro-active ‘green new deal’ set of policies, in the spirit of Roosevelt’s ‘new deal’ policies, made in response to the Great Depression of the 1930s.

Dr Omer Javed holds PhD in Economics degree from the University of Barcelona (Spain) and previously worked at International MonetaryFund. He is author of Springer published book(2016) ‘The economic impact of International Monetary Fund programs: institutional quality, macroeconomic stabilization and economic growth.’ He tweets @omerjaved7

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