Can the general elections expected this year open up the path that leads to a turnaround in the political economy? Or will we just see business as usual despite the newly elected federal government in the saddle?

The earliest sign to show in which direction the country would move after elections will be whether the election campaign is focused on how the nation’s key challenges are to be addressed or whether the political discourse will remain mired in power politics.

Issues in the electoral campaign need to revolve around sound home-grown strategy, programme, policy, and plan of action to facilitate much-needed structural changes in the economy.

And once approved by the electorate, the promises made to the voters need to be implemented by elected representatives. In case of a split mandate, the rival parties should come together to evolve a common programme and set the ball rolling. That would promote political stability and help improve governance. Prudent politics should precede like that in the case of the economic crisis in Malaysia in the late 1990s to put things right.

The campaigns should focus on how the nation’s key economic challenges are to be addressed rather than remain mired in power politics

We live in a world that is constantly changing. At the same time, unmanageable chronic crises make it imperative to seek new ways to resolve problems, as the following observations by various analysts illustrate.

To quote an analyst, we have never evolved or executed policies required to put Pakistan’s economy on sustainable growth. External loans and assistance can never solve the economic problems of the country. “We only borrow foreign exchange from one source to repay another, and our debt is not repaid and only grows,” says former finance minister Miftah Ismail.

When Pakistan became a part of the West’s war against Al-Qaida and Taliban, he recalls that much of our external debt owed to the West was written off. An externally guided development effort has not been as effective as hoped, says former finance ministry advisor Khaqan Hassan Najeeb. And he reminds policymakers we must not lose hope in our capability.

“Our troubles are not for want of capital but because of unimaginative policies,” says Humayun Akhtar Khan, adding expediency and special interests are no substitute for strategy. He suggests that the money saved must pay back remaining debts at a faster rate and investment be made in private sector productivity.

Pakistan’s average productivity rate was recorded at 1.5 per cent from 2010 to 2020, much lower than required for a GDP growth of 7-8pc to ensure full employment.

We doubled our (much-needed) power-producing capacity, Mr Ismail points out, but we did not double our industrial production or exports over the five years (of earlier PML-N tenure) or the ensuing four years (of PTI government). Growth in large-scale manufacturing industries decreased by 5.5pc in November, contributing to a 3.6pc contraction during July-December 2022 compared to the same period last year.

The number of SME borrowers dropped to 160,736 in September 2022, the lowest since December 2015

But noteworthy is the memorandum of understanding signed by Pakistan and Iran to try to balance trade while taking measures to increase annual bilateral trade to $5 billion.

In sharp contrast to the current monetary policy aimed at macroeconomic stability, Mr Khan says overall demand must increase. For that, most people’s income and purchasing power should be increased.

According to a development economist, various international studies conducted since 2005 have established that most economic reforms do not produce growth acceleration. Comprehensive research in 2007 by scholar Dani Rodrick of Harvard University, drawing upon the experience of the previous two decades, demonstrated that policymakers lack a good grasp on the policies that promote growth. Their current approach suffers from a lack of theory.

“Instead of a world economy in service to domestic policies and the overall welfare of the people within a broad range of national states, we have gotten a world in the service to itself,” says the author of the book Homecoming Rana Foroohar.

Suggesting a paradigm shift in Pakistan’s economic strategy, Mr Khan says that entrepreneurs at all levels should grow, especially small industries whose need for capital, technology and energy is not high and suits the economy’s current circumstances. Small firms bring a lot of value. He laments that they are now operating in an unhelpful governance climate.

The number of borrowers from the small and medium-sized enterprises sector has dropped to 160,736 in September 2022, the lowest since December 2015.

For economic prosperity, Mr Khan says both consumption and production should increase. Proper help can boost the production of small industries and increase the purchasing power of the people. And rising incomes at the micro level would help economic growth and enhance the demand for large-scale industries.

In the case of flood money pledged by multinational and bilateral donors, the Shahbaz Sharif government has adopted a coordinated approach involving all three tiers of government in reconstruction work. The cost of rehabilitation would be funded on a 50:50 basis through both federal and provincial development plans.

The provincial governments would drive the entire development and implementation exercise while the federal Planning Division would facilitate their coordination with international lenders. The federal government will also establish a technical committee to utilise the money, and similar technical committees will also be set up at the provincial and district levels.

But that is not enough. Explaining the compelling reasons for future devolution of authority and responsibility to the local bodies, Dr Ishrat Hussain says that the citizens of a local jurisdiction are found to pay more taxes as they see that their taxes are being used to increase access to basic public services. Mr Hussain is the author of the book Governing the Ungovernable.

Under a centralised system, citizens consider its disappearance into a black box, and they don’t see any perceptible benefits for themselves or the areas in which they live. The quantum of revenues, he suggests, can rise significantly if taxes such as agricultural income and urban property tax are devolved to the local government.

Published in Dawn, The Business and Finance Weekly, January 23rd, 2023