Zafar Iqbal
Economic growth depends on four main factors: physical capital, infrastructure, human capital, and technology. Pakistan is among the countries that have not achieved growth rates that match their development potential for many years.
By ignoring investments in the key factors of growth, we shift our focus to less productive activities, increasing our debt burden.
This leads to a misallocation of resources, where a large part of them goes to debt servicing, leaving little fiscal space. This forces us to raise taxes and duties to keep fiscal discipline, adding to the financial pressure—a vicious cycle that not only lowers our ability to invest in vital economic development but also affects the possibility of sustained, meaningful growth.
Focusing on unproductive activities also hampers progress, requiring a reevaluation of priorities to align with sustainable growth strategies to reduce the burden on fiscal resources.
Caretaker Finance Minister Dr Shamshad Akhtar, in her speech at the 26th Sustainable Development Conference organized by Sustainable Development Policy Institute, highlighted the disruptive effect of political instability on Pakistan’s economic growth.
Stressing the crucial role of structural reforms in enhancing economic development, she stated a fundamental truth. Despite recognizing the importance of these reforms for ensuring stable growth, our leaders show reluctance in implementing the much-needed structural changes which further aggravate the challenges in achieving sustained economic progress.
Regrettably, Pakistan always finds itself agreeing to a series of structural reforms whenever it enters into agreements with the International Monetary Fund (IMF). These reforms cover critical areas, such as fiscal consolidation to reduce public debt, strengthening social safety net to protect vulnerable groups, making further changes in the energy sector to lower costs, switching to a market-driven exchange rate, and restoring foreign exchange reserves.
Moreover, the commitments include adopting a proactive monetary policy to curb inflation, boosting financial sector’s resilience, continuing with reforms in state-owned enterprises and governance, and enhancing cooperation with international partners.
This repeated commitment shows Pakistan’s determination to address complex economic challenges through a holistic and coordinated reform agenda. However, critical structural reforms remain elusive. A major concern is the State-Owned Enterprises (SOEs), which consume resources without contributing positively, thus burdening taxpayers.
Commitment to start the privatization process for specific SOEs was made during the tenures of previous governments (PMLN 2013-18 and PTI 2018-2022) with identifying specific entities in the Extended Fund Facility Programme (EFF) signed by the PTI government but nothing was done in this regard.
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The current caretaker privatization minister, initially seen as proactive, has not met the expectations. Despite the passage of a reasonable time, he has failed to propose necessary changes to privatization laws, preventing the initiation of a swift and efficient privatization process without undue strain on the national exchequer.
It is expected that Election Commission of Pakistan will soon announce the upcoming election details for filing nomination papers, decision on candidature, appeals deadline, and allotment of election symbols scheduled for February 8, 2023.
However, the paradox is that the political parties preparing for the electoral race and aspiring to assume governance seem to lack a clear and comprehensive plan to address the pressing issues currently affecting Pakistan. This lack of strategic direction raises concerns about the ability of prospective leaders to effectively navigate and resolve complex challenges facing the nation.
Therefore, political stability is crucial for the economy of Pakistan, as it affects various aspects of economic performance and development. Political stability refers to the degree of certainty and predictability in the political system, the continuity and consistency of policies, the effectiveness and accountability of governance, and the legitimacy and acceptance of the government by the people. Political stability can foster economic growth, investment, trade, innovation, and social welfare, while political instability can undermine them. Political stability can enhance investor confidence, both domestic and foreign, by reducing uncertainty and risk. Investors are more likely to invest in a country that has a stable political environment, where policies are predictable and transparent, and where contracts and property rights are protected. Political stability can also attract more foreign direct investment (FDI), which can bring capital, technology, skills, and jobs to the country. Political instability, on the other hand, can deter investment, as investors may fear policy changes, political violence, corruption, or expropriation. Political instability can also lead to capital flight, as investors may withdraw their assets from the country to avoid losses. According to many analyses, political instability has a significant negative impact on FDI in Pakistan.
Political stability can enable policy consistency and effectiveness, which are essential for economic development. A stable political system can allow the government to formulate and implement long-term and coherent policies that address the key challenges and opportunities facing the country. A stable government can also ensure effective governance, which involves the efficient and accountable delivery of public goods and services, such as infrastructure, education, health, and security. Political instability, on the contrary, can disrupt policy continuity and effectiveness, as frequent changes in government, political crises, or conflicts can lead to policy reversals, delays, or failures. Political instability can also weaken governance, as the government may lack the capacity, legitimacy, or will to provide public goods and services or may be captured by vested interests. According to the study of Republic Policy, political instability has a significant negative impact on economic growth in Pakistan.
Political stability can promote social harmony and cohesion, which are vital for economic prosperity. A stable political system can foster a sense of national unity and identity and can accommodate the diverse interests and demands of different groups and regions in the country. A stable government can also ensure the protection and participation of human rights and democracy, which can enhance the well-being and empowerment of the people. Political instability, on the other hand, can fuel social discord and conflict, as different groups and regions may feel marginalized, oppressed, or exploited by the political system. Political instability can also undermine human rights and democracy, as the government may resort to repression, censorship, or manipulation to maintain its power. According to the Republic Policy report, political instability has a significant negative impact on social development in Pakistan.
Lastly, political stability is important for the economy of Pakistan, as it can create a conducive environment for economic growth, investment, trade, innovation, and social welfare. Political stability can also help Pakistan overcome the complex and interrelated challenges that it faces, such as poverty, inequality, corruption, terrorism, and climate change. Therefore, it is imperative for Pakistan to pursue political stability, by strengthening its democratic institutions, enhancing its civil-military relations, resolving its regional and ethnic tensions, and improving its governance and accountability.
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