Two recognised main areas of macroeconomics are long-term economic growth and short-term business cycles. Macroeconomics helps evaluate the resources and capabilities of an economy, churn out ways to increase the national income, boost productivity, and create job opportunities.

In recent decades, inequality has emerged as a core issue in economic development and growth. Human capital is seen as a primary factor in increasing productivity.

A number of recent international corroborative studies have also established that countries with more inequality perform poorly — there are multiple ways in which inequality has adverse economic, social and political consequences.

Multi-faceted inequality “has become the defining issue of our time”, say analysts at Business Recorder. There is a growing global consensus that everyone should have equal access to economic opportunities.

“We pay a high price for inequality even in terms of GDP, a narrowly defined measure of economic growth,” Joseph E Stiglitz wrote in his book, The Price of Inequality, published in 2022.

Pakistan, disproportionately affected by crises and course correction, must tackle structural issues, unequal opportunities and labour challenges if it wishes to achieve economic stability

The crises occurring since 2019 have had disproportionately severe impacts on already vulnerable people and countries, according to the World Social Development Report 2024, published by the United Nations Department of Social Welfare. Impacts are also persistent, says the report.

A 2024 projection of where the global output will be in 2030 compared to where it was expected to be at the end of 2019 shows a cumulative output loss of over $50 trillion, an indication of lost opportunities for social development.

The extreme concentration of economic and political power in the hands of a small minority, critics lament, has exacerbated problems of climate breakdown, poverty, and disparities in education and health outcomes worldwide.

Pakistan has one of the lowest rates of domestic credit to the private sector as a percentage of GDP. It was just under 12 per cent in 2023, down from 24pc in 2008, according to the World Bank.

Trade union leaders lament that under the prevailing labour contract system, 95pc of workers are deprived of written appointment letters, social security, pensions, minimum wage, paid weekly holidays, annual leave, gratuity and bonuses. And the contract system has expanded to various sectors of the economy and government organisations/entities.

Finance Minister Muhammad Aurangzeb says the policy focus was to attain macroeconomic stability first, and then take growth-oriented steps as the prevailing structural issues facing the country’s economy would lead to balance of payment issues, as has been evidenced in previous years.

To ease external sector vulnerabilities, the government has significantly reduced the current account deficit, increased foreign exchange reserves and relatively stabilised exchange rate. With inflation coming down, the State Bank has also reduced its policy rate. The primary balance is in surplus because of a check on non-interest spending.

Debt-financed imports have ceased to be an option — we must live within our means

But these are highly variable indicators, particularly in the present conditions. For example, in FY24, workers’ remittances surged by 10.7pc from the previous year to $30.3 billion, but fears are being expressed that this current surge may take a hit if we don’t pay heed to the demands of the international marketplace.

Furthermore, an official report reveals that the low skills and work practices of some Pakistanis have led to Gulf employers increasingly hiring personnel from other countries instead.

Beyond that, Pakistan’s exports to the US and Europe have recently started to fall. The government is trying to boost exports to reduce the import-export gap, in the face of the emerging challenges posed by the latest international economic trends.

The weak US employment data released on August 2nd sparked fears of a recession ahead that has started impacting the global equity market, dollar value and the return on US bonds. Many Americans believe that the US Federal Reserve made an error by not reducing its funds rate.

Analysts in Pakistan also fear that Donald Trump’s potential return to power may have an adverse impact on Pakistan’s external trade, as he favours imposing higher tariffs on imported goods to protect local industries and jobs, exerting pressure on Chinese trade.

As the UN report notes, shocks have become more intense, widespread and interlinked, leaving lasting impacts on social development.

We need to step up efforts to increase productivity, diversify the output of goods and services for sales to diversified markets while maximising the use of local talents and resources.

It is also necessary to balance bilateral trade as far as possible. Our trading partners need to understand that we need to sell in order to buy. Debt-financed imports have ceased to be an option — we must live within our means.

The basic question is how the correction course starts. To quote analyst Mir Adnan Aziz, “Democracy, as a legitimate political system, has inbuilt tools of self-correction. It hinges on people choosing and replacing their leaders in free and fair elections.”

Published in Dawn, The Business and Finance Weekly, August 12th, 2024