A policy abyss

Pakistan is stuck in a low-growth trap. The population is growing at a rate of 2.5 percent per annum, while economic growth remains sluggish, and doesn’t even cover population growth rate. At least 40 percent of children aged under five in the country are stunted, while there are more than 20 million children out of school.  Inflation continues to erode purchasing power, with price levels having more than doubled in the last five years.  Productive capacity of the country continues to diminish, while consumption makes up almost 100 percent of total GDP, largely financed by foreign-currency denominated imports.  

Electricity consumption per capita has remained flat in the last five years, while electricity is simply not affordable for either households, or industries to generate economically competitive products.  As the population grows, and productive capacity dwindles, national output remains largely a function of import-driven consumption, rather than investments, or exports.  A lopsided economic model that can only generate growth given availability of foreign currency, mostly through external debt, funded by a mix of multilateral institutions, and friendly countries, who may also be fed up with never ending demand for rollovers, and more debt.  Economic growth is beholden to the availability of external debt – in the absence of which growth crashes to below population growth levels, wiping out incomes, and purchasing power in the process.

Despite deterioration on most economic, and social indicators, the political parties competing in the general elections have little to offer in terms of any policy guidance, or plans that can pull the country out of the low-growth trap.  The manifestos by all major, and even minor political parties are a collection of wish lists, with no plan on how those wishes can be brought to fruition.  If wishes were horses, our political parties would be unicorns – but we are effectively stuck with a collection of geriatrics with nothing to offer in terms of a coherent economic plan, or policy framework.

Absence of a coherent economic plan, and absolutely no focus on development of a policy framework that can provide guidance on how the country can remove itself from a low-growth trap has led to a situation where political parties do not have anything to offer.  The political leadership is still stuck in the 1990s, and has yet to enter the twenty-first century.  None of the political parties have any dedicated economic or social policy wings.  In absence of such discourse even within political parties, any political party that is able to make a government does not have any plan to fix any problem.

It then takes a few months, or quarters to do fire-fighting, get into an inevitable program with the IMF, and then maybe start delivering.  By the time any elected government gets to a point where it can start enacting sound long-term policy, it is already too late, considering the way democratic governments are transitioned out.  Absence of policy direction at political party level eventually leads to reactive decision making by the government, wherein now the elected government remains beholden to vested interests of those operating the system.  Due to the same, the ability to develop policies with a long-term orientation remains absent, further strengthening the status quo.

In absence of any policy thought, or long-term orientation towards a consistent policy framework, the bureaucracy continues to operate with the philosophy of kicking the can down the road – and the same has been happening for decades at this point.  Eventually the road gets rocky, and that rocky road leads to the end of a cliff.  The country is on the rocky road right now, the can doesn’t have much more distance to cover.  If the bureaucracy, and the political leadership continues to kick the can down the road, it will eventually lead to the end of the cliff.  

Policy inaction, and inability to take decisions continues to succumb to the population of this country to abject misery, and it is only going to get worse.  Policies developed have a pro-rich tilt, largely to serve vested interests of a few thousand households, rather than the millions of households that exist in the country.  Absence of a long-term sustainable policy framework will continue to serve interests of the pro-rich tilt, while pushing everyone else over the cliff into an abyss.  It is time that political leadership, or the shadow leadership that exists understands that we cannot kick the can down the road anymore.  The country does not have much time left. The demographic dividend will become a demographic liability, and today’s problems will compound to become much bigger existential problems.  We can either work towards a country that exists for everyone, and makes everyone healthy and prosperous, or we can work towards serving the interests of a few thousand rent-seeking households.

Ammar H. Khan
Ammar H. Khan
The writer is a non-resident Senior Fellow at the Atlantic Council. He has previously worked at several financial institutions in Pakistan, both in commercial banking and capital markets.

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