The International Monetary Fund (IMF) says Pakistan’s economy can grow 2.5per cent this fiscal year. This modest growth will be achieved on a low base of 0.3pc for the last fiscal year, which ended in June. This may pave the way for another two to three years of equal or slightly higher levels of growth if Pakistan is able to secure a large-sized ($8 billion-$9bn), three-year extended Fund Facility of the IMF after completing the ongoing nine-month $3bn Standby Arrangement (SBA).

There is apparently no way for the economy to grow in the absence of an IMF loan in the near future. The reason is that Pakistan is heavily dependent on foreign state and commercial loans. For some years, it has been borrowing just to repay foreign loans and avoid sovereign default. And seeking loans — even from the friendliest countries or their commercial entities — isn’t possible without an IMF programme. Pakistan has lately learned this lesson the hard way. This is a plain fact.

Pakistan’s economy can be expected to expand modestly for three fiscal years, including the current one that began on July 1, on the back of a large IMF loan immediately after the current SBA. But even a $8-$9bn IMF loan will not guarantee the continuation of this modest growth or accelerate its pace after three years.

To ensure that Pakistan will have to learn to stand on its own feet and do whatever is required for this. In our case, IMF support only paves the way for urgently required fresh external borrowings and helps our rulers save face by delaying sovereign default for the time being. The nation — not the rulers — pays the price of IMF support. Inflation keeps soaring, and thousands of people lose jobs daily. Pakistanis have learnt this lesson, too, again and again, including very recently in 2022-23. This, too, is a plain fact.

Pakistan cannot afford oversized federal and provincial cabinets and lavish pay and perks for government employees

The important question is whether this three-year modest growth, accompanied by very high cost-push inflation, will enable Pakistan to make policies for sustainable, modest inflation-producing growth.

Achieving sustainable growth after three years of IMF-supervised economic performance may be difficult, given the depth and enormity of Pakistan’s structural economic problems. But it is not impossible at all.

It is possible for the country to lay the foundations of sustainable, long-term, job-producing economic growth. But the prerequisites are quite demanding. Sustainable economic growth that also meets ideal social objectives of a fairer distribution of resources and equal opportunities for all can be achieved if (1) the government cuts its expenses drastically, (2) the private sector is made truly efficient, (3) “rule of law for all” is ensured in letter and spirit and (4) a system for the provision of inexpensive and speedy “justice for all” is put in place.

The inability of the governments — past and present — to cut costs, including the non-combatant military budget, has contributed to growth in domestic and external debts. These debts have now reached a level where the government has no other option but to borrow more to clear old debts. This has landed the country in a debt trap.

Debts have reached a level where the government has no other option but to borrow more

The first thing the future elected government will have to do is help the country gradually escape this debt trap. And the least it can do is cut its own expenses drastically. Pakistan cannot afford oversized federal and provincial cabinets and lavish pay and perks for government employees, including employees in the uniform and judges.

Pakistan’s private sector’s composition is unique. A long list of companies owned and run by the powerful “establishment” and an equally long list of companies owned and run by the frontmen of powerful politicians make up the private sector.

The first category of companies officially enjoys tax exemptions of several kinds, and the second category of companies manages to seek special treatment. This has emboldened some genuine entrepreneurs to always remain dependent on incentives and frustrated many others who fail to get these incentives.

No economic model can help Pakistan attain sustainable growth if the composition of the private sector is not improved with a ban on entry into the private sector’s folds of new companies of the above-mentioned two types.

All types of discrimination — except the one on performance—must also end within the private sector. Doors of freer exit and freer entry will have to be opened in all industries — except those that have strategic importance — to ensure better performance of the private sector.

Businesses and companies, just like households and individuals, perform better in an environment with the rule of law for all. For sustainable economic growth, the culture of the rule of law will have to be embraced. Genuine entrepreneurs can no longer afford to operate in the near absence of the rule of law. A quick Google search can show anyone the level of lawlessness in Pakistan.

Provision of inexpensive and speedy justice to all — and not just to a few powerful individuals or families — goes a long way in restoring the confidence of the domestic private sector and foreign investors.

Sustainable economic growth in Pakistan will remain elusive unless the country’s judicial system is reformed with this objective in mind. If this is done even partially, it will restore the confidence of local and foreign firms and their employees in Pakistan’s business environment. If not, their confidence level, already low, would keep falling, and the economy at large would continue to suffer.

Published in Dawn, The Business and Finance Weekly, July 24th, 2023