THERE is a perception that economic stabilisation and growth can’t be achieved together. This article tries to dispel the impression besides offering a view of how to accelerate economic growth.

The main aim of any stabilisation programme is to prevent the economy from excessive ‘overheating’ or ‘slowdown’ rather than overhauling inertia-ridden institutions and the productive structures of an economic system. Stabilisation emphasises ‘getting the price right’ as reflected in interest rates, exchange rates, wages, inflation, subsidies and austerity drives.

It is equally important to stress on ‘getting activities right’ such as ensuring the efficient use of existing resources and the exploration and creation of new ones. The onus then lies on the government to remove market- and policy-induced distortions for nurturing existing businesses and paving the way for new ones.

Unfortunately, over the last three decades, Pakistan did not grow economically at the same pace as its peers including China, Malaysia, India and Turkey. Rather, Pakistan’s long-run economic growth rate as well as its potential declined from five per cent to 3pc. Our productivity, a key driver of growth, is thrice as low as it was in the 1980s. The experience of the newly industrialised economies mentioned shows there is no royal road to high growth except for self-organising and dynamic structural reforms to accelerate the transition of a factor-driven economy to one that is propelled by efficiency and innovation.

An economy of 208 million inhabitants requires sustained, self-reinforcing growth but we remain in a place where high-growth episodes always face external-account vulnerabilities. Recently, we attempted to avert our 13th balance-of-payments crisis since 1988. All our previous IMF programmes provided only temporary relief and we largely failed to bring about an economic transformation. Hence, we need to dig deeper to find out why our economy is ailing and how we can fix it.

We need to dig deeper to find out why our economy is ailing.

First, we need to understand that the locus of success or failure is the business unit, not the government. What makes a business unit healthy? Operational efficiency and a good strategy. The latter is one that is responsive to change and that harnesses the available resources to yield competitive advantage. Once these two conditions are achieved, a stable macroeconomic environment encourages entrepreneurs to take risks in the economic system. Largely, it is the government’s responsibility to institute a well-coordinated policy framework. Regrettably, things are dismal on this front in Pakistan.

At present, 33 federal policies are operational in various domains. Most of them date back to 2006 and have become outdated in changing economic scenarios. Line ministries have made minimal effort to carry out a strategic review of these policies for ensuring their relevance, effectiveness and inter-sectoral alignment. The Planning Commission initiated a review process in May 2017, but so far the desired results are far from becoming a reality.

Second, the state’s capacity in terms of institutions and the civil bureaucracy has eroded over time. Overemphasis on financial accountability and the utter lack of administrative culpability has destroyed the bureaucracy’s agility which serves as a catalyst in economic transformation. Further, private-sector development is constrained because bureaucracy believes that profit-making is immoral — a mindset that is a remnant of the 1970s nationalisation policy. A shift in this approach can boost national performance and productivity.

Third, the government is too large and fragmented to effectively coordinate. At times, there is no clarity as to who is responsible for decision-making among the federal, provincial and local governments. Un­­tang­ling decision-making at various tiers and eliminating redundant institutions can help accelerate economic growth.

Fourth, the economy may experience ‘extensive growth’ (a simple increase in real GDP) but can’t have ‘intensive growth’ (an increase in GDP per person) with a population growth rate of 2.4pc. The government hasn’t devised a national population policy so far.

Last but not the least, our production system is developed around an import-substitution regime and we expect to boost our exports through it. This is unlikely to happen without a comprehensive industrial strategy and a major change in our tax and tariff structures.

Thus, the IMF’s stabilisation programme that is meant to get the price right can’t be used as a scapegoat to excuse ourselves from our responsibility to get activities right in the domestic market. The mix of stabilising and productivity-led, growth-enhancing and home-grown initiatives can work together. Tackling these challenges does not call for hefty budgetary allocations. As a matter of fact, it involves political capital, tenacity, hard work and perhaps a ‘charter of economy’.

The writer is a professor at KSBL and former chief economist of Pakistan.

Published in Dawn, March 15th, 2020