After the removal of distinguished technocrat Dr Abdul Hafeez Shaikh, the Economic Advisory Council (EAC) has been immediately reconstituted with Prime Minister Imran Khan as its chairman and Finance Minister Hammad Azhar as its vice-chairman.

Apparently, the reconstituted EAC and its mandate are expected to help the government to implement the International Monetary Fund (IMF) programme as effectively as ground realities permit.

Some cabinet ministers are reported to have privately told the media that the IMF programme “could not go to the end unless the harsh, already accepted conditions for electricity and taxes were softened.”

The prime minister and his finance minister are reported to have said the Fund has its own conditionality but the government can always review it. The IMF and Pakistan often differ on the pace and sequence of the reforms and the lender’s micromanaging of the economy while working for shared goals.

The disproportionate disparity in inequality and over-concentration of wealth in a few hands leads to an economic slowdown and the flight of capital and skilled labour

The authorities clinched a quick deal with the IMF probably for the much-needed balance of payments support with the confidence that adjustments in the Fund conditionality would be forthcoming during the difficult and challenging phase of its implementation. The lender also shows flexibility in case the agreed reforms keep moving in the right direction.

The World Bank’s flagship ‘Pakistan Development Update —Navigating in Uncertain Times’ released in early April concedes that economic activity is projected to dampen in the short-term by measures associated with IMF fiscal stabilisation programme. Economic growth is also expected to recover slowly, given the heightened uncertainty surrounding the Covid-19 pandemic. The report described the current economic recovery as ‘fragile’.

Mr Khan says his government will approach the IMF for a second relief package for the needy and deserving people during the Covid-19 pandemic.

In the prevailing situation, the EAC would be a forum to promote an active informal debate that is expected to lead to sound policymaking, analytical whetting and active monitoring, as envisaged by the leadership for sustained institutional reforms, modernisation of the public sector and enhancing public welfare.

The council will recommend macroeconomic stabilisation measures and forward reforms agenda for robust and sustained growth. The Ministry of Finance will be the nodal government agency for the EAC.

Despite its positive features, missing in the EAC mandate is the over-arching specific chronic and aggravating problem of low productivity. It should have been the pivotal starting point to initiate a set of robust policy measures to forge a new vibrant economy.

To quote Noble Prize-winner Paul Krugman, “productivity is considered as the key source of economic growth and competiveness. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”

For distressed Pakistan’s economy, nothing is more important in the long run than boosting the production of value-added goods and services of international quality and at globally competitive prices. That is how the fundamentals of the economy can be best improved.

Productivity is primarily a function of the latest technologies, human skills and professional expertise. The gains in productivity should be equitably shared with human talents and other stakeholders for sustained growth.

The disproportionate disparity in inequality and over-concentration of wealth in few hands leads to economic slowdown and recession. And that results in the flight of capital abroad in search of better pastures and migration of skilled labour and professionals to foreign lands in pursuit of a better career.

Briefly, low productivity results in demand-supply gaps in the economy. Domestic shortages are met by imports and the economy does not produce enough trade surpluses. Trade deficits are financed by foreign capital and financial inflows. The economy finally gets addicted to foreign debts.

Then the policy focus shifts from economic growth to managing the macro-economic imbalances that depress domestic demand and hurt productivity.

The inefficient mode of production has mainly contributed to a surge in food and electricity prices with the current inflation rate at 9.1 per cent. And inflation has become a major source of worry both for the government, the low-income consumers and most small investors.

Official data shows that electricity rates are now 31.5pc higher than a year ago. Similarly, almost all kitchen items have recorded a double-digit increase.

In March imports grew at nearly twice the pace of exports on account of imports of commodities to meet domestic needs. The trade deficit rose to $3bn.

The Pakistan Bureau of Statistics data shows that during nine months of the current fiscal year, imports grew to $39.2 billion from $34.8bn and exports to $18.67bn from $17.45bn as compared to the same period last year.

Despite a huge and wide range of incentives exports remain stagnant. The nine-month export proceeds of $17.45bn were lower than eight months of workers remittances amounting to $17.7bn by February–end. With no effective import substitution effort to fill output gaps, where possible, Pakistan’s foreign trade remains imported-oriented.

Low agricultural productivity and high inflation have heightened the risk to food security. To quote the World Bank update, over 30pc of the rural population has slipped into poverty.

Nearly 40pc of the country’s population is engaged in agricultural production which contributes less than 20pc of GDP. That speaks volumes about low farming productivity.

But for land reforms by former President Ayub and ex-Prime Minister Zulfikar Ali Bhutto, no meaningful effort have been made to bring about structural change in regressive land ownership, which is a strong barrier to rapid industrialisation and modernisation of farming.

However, going by the logic of the sequence of recent events and the political imperatives of the second half of PTI’s tenure of office, people’s representatives would have more say in policymaking than they had in the first half.

They are likely to address issues of public welfare with flexibility unlike the rigid approach of technocrats with unwavering faith in the IMF orthodoxy.

We need to bring about a productivity revolution by democratic means and an evolutionary process that ensures equitable gains to all stakeholders and builds a new Pakistan.

Published in Dawn, The Business and Finance Weekly, April 12th, 2021