Economic pipe dream
REGIME gurus claim to have put us on the path of progress — except that all past regimes falsely claimed this too. Progress includes not only economic stability and durable growth but also equity and sustainability. Each earlier trait is necessary but not sufficient to produce the latter ones.
So far, we have only regained economic stability after the 2022 crisis, with falling inflation and interest rates, a stable rupee and higher dollar reserves. But past rulers, too, gave us stability after crises — the PPP after 2008, following the crisis under the PML-Q; the PML-N after 2013, following the crisis under the PPP; the PTI after 2018, following the crisis under the PML-N; and now the PML-N after 2022, following the crisis under the PTI. Each inherited and bequeathed a crisis. But no party produced durable growth. So, the PML-N may fail again.
These crises are a result of the flawed ways in which we have pursued growth. China and India’s growth came by upping investment and productivity via reforms. China’s investment-GDP ratio is 40 per cent, while India’s is 30pc. Our highest level under the PML-Q, PML-N and PTI was 18pc, 17pc and 15pc. Our productivity is low too, as we shun reforms. We achieve growth via high external and fiscal deficits and money supply growth. But the first shrinks reserves while the next two generate inflation to cause crises and end growth. We must not be fooled by high growth but check the investment and twin deficit ratios to see if growth is durable.
Attaining economic stability after a crisis is easy. Under IMF-led reforms, it can be achieved largely via administrative fiat in a few months. The State Bank chief can up interest rates and devalue the rupee by ending its dollar sales. The finance guru can cut development outlays, up import tariffs and borrow from the Gulf and China. These can shrink the deficits to contain the crisis, but they also cut growth badly. But it took the PML-N much longer to do so due to Ishaq Dar’s policies. The PML-N also put the burden of crisis on the poor, while shielding the rich from taxes. Even our new-found stability is at risk as the expected early arrival of the IMF team shows.
No political party has produced durable growth.
To now achieve durable growth, the PML-N has to usher in huge reforms in sick state units, the energy sector, subsidies, tax and tariff structures, and the bureaucracy to increase investment, productivity, sectoral growth and exports. But all our major parties shun reforms as they harm the elites. The second step is the most critical but even harder — to develop a creative vision for a pro-poor economy and upgrade exports via a deep study of niches in the global economy and allow dynamic entrepreneurs to enter them. But none of our political parties think this way. Most think that after stability, our market will achieve such growth itself. However, our market is as stagnant as our state. Many ills, for example, sleaze, originate in the market whose elites capture the state for their own good. The 2022 political change led to key exits at the Planning Commission to end a solo effort there on crafting such an export strategy.
The new IMF deal, with its usual neoliberal bent, covers such reforms, but patchily and without a new economic vision. Such external reform pressure must come proactively before a crisis, when its seeds are laid via high twin deficits etc, to pre-empt the high cost of the crisis. So, the PML-N itself must develop a strong reform, growth, equity and sustainability agenda. However, strong outcomes stem from strong strategies which come from a strong team. One look at the anaemic, politically appointed, economic and social sector teams at the centre and in the provinces shows that durable growth cannot be achieved, let alone equity or sustainability, without merit.
So far, the government has failed to carry out even basic reforms in FBR, the energy sector and state units, as the PIA sale fiasco shows. That was the failure of not only the state but also our market and of the ‘privatisation only’ neoliberal mantra that ignores better restructuring options: management transfer, independent boards, or staff-owned companies. Its investment pursuit via the controversial SIFC reflects a faulty triple focus: foreign flows but not local ones, even for non-dollar earning sectors; politicised flows from big states but not reform-induced private flows; and low-end sectors such as mining and corporate farming that cause social problems.
Thus, its efforts will either give precarious economic stability sans growth, like PPP during 2008-13, or high growth that causes another economic crisis. But sustainable and equitable growth will again remain elusive pipe dreams.
The writer is a political economist with a PhD from the University of California, Berkeley.
Published in Dawn, November 12th, 2024
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