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Recovery: the missing synergies

Recovery: the missing synergies

Surging inequality and erosion of democratic values in the corridors of power are proving politically divisive and are impairing social cohesion worldwide. Much of the discontent at the grassroots is spilling on the streets. And populists have been reactivated.

The disproportionate concentration of wealth in few hands tends to create recession or depression, unemployment and poverty. The high economic growth, which is not inclusive, does not create enough needed political capital and ultimately leads to political turmoil.

Pakistan’s development decade of the 1960s marked by a democratic deficit ended in a deep political crisis. Politics moved to the centre stage and economics took a back seat as an unacceptable level of disparity in regional and household incomes created mass dissatisfaction and led to the 1971 tragedy. Economic growth without distributive and social justice is not sustainable.

The Planning Commission must draw up a balanced economic growth revival plan for the remaining period of PTI-government’s tenure and its implementation should start as soon as possible

In 1973, the political remedy was found in the unanimously approved Constitution by the Parliament envisaging a democratic, federal and egalitarian system. If politics and economics are synergised in a citizen’s based democracy, conditions can be created for moving towards the common good, nurturing national unity and promoting social cohesion.

Now the more frequently occurring boom and bust cycles followed by the health and economic crises triggered by the two global waves of the Covid-19 are sought to be addressed through hybrid democracy. The hybrid regime has given birth to the 11-parties Pakistan Democratic Movement (PDM). And the widening gap between PTI’s promises and performance is providing space for PDM to build political muscle.

The grievances of those left behind are accumulating as witnessed in the mounting street protests, backed by civil society organisations and trade unions seeking an end to poverty, unemployment, workers layoffs, the rising cost of living, falling nominal/ real wages etc.

Once again politics is surfacing as a critical factor in shaping the country’s political economy. In his article on ‘Growth vs Stability: Which approach is the best to tackle the economy? ’, Professor Rashid Amjad of Lahore School of Economics says the time for reckoning is fast approaching and government must deliver with less than two and half years left in power. The scholar stresses that political imperatives must take the upper hand and economic policy should follow suit. The Planning Commission must draw up a balanced economic growth revival plan for the remaining period of PTI-government’s tenure and its implementation should start as soon as possible.

While the nascent recovery so far is encouraging in these distressing times, to quote the founder of the Nishat Group Mian Muhammad Mansha, it’s sustainability depends as much on policy and political stability as in the availability of a vaccine against coronavirus. As demonstrated by the daunting challenges facing the hybrid regime, things can no longer be run arbitrarily. The Lahore High Court has stayed work on Ravi Riverfront Urban Development till the approval of Environmental Impact Assessment report. The court has also asked the government to file a compliance report relating to the environmental standards in the housing projects. Never have courts been so active in enforcing rule of law.

The much-criticised Island Authority Ordinance for uplift for coastal areas of Sindh and Baluchistan has expired on December 31, says Sindh Minister Murtaza Wahab. Pakistan Foreign Investors Forum — a group of wind and solar energy sponsors — have complained to the prime minister that the Ministry of Energy has not issued gazette notifications for the past 5-10 months despite the clearance of tariffs for projects by National Electric Power Regulatory Authority (Nepra) owing to a lacuna in the April 20 decision of the Cabinet Committee on Energy.

Imran Khan has lost some of his political capital trying his utmost to pull the economy from its downturn as his strenuous efforts were frustrated by the resurgence of Covid-19, clogged administrative machinery, the state of governance he has inherited and the way a hybrid government and cabinet were cobbled. The World Bank report ‘Global Economic Prospects‘ says some economies including Pakistan face considerable policy and security-related uncertainties.

Take the flagship housing project. Under the Amnesty Scheme, investors are reported to buying and selling land instead of funding construction activities. A one-year extension has been given to construction projects which were supposed to be completed in 2022. And digitisation of land records in three big cities — Islamabad, Lahore and Karachi — would be completed by August. So far an amount of Rs186 billion has been shown in the bank accounts by those who have availed immunity against probing the source of investment. The incentive package including tax amnesty has been extended further.

Barring any unforeseen shock, the relatively easy money made available to industry and construction sector might increase Pakistan’s economic resilience in the medium- and long-term and improve its ability to bounce back to higher growth rates in the short-term, says Dr Abid Qayum Suleri, head of Sustainable Development Policy Institute.

Noting key positive and negative economic trends, independent economist Dr Mushtaq Khan argues that the country would not see a spectacular recovery.

The State Bank of Pakistan estimates real GDP growth in the range of 1.5-2.5 per cent for 2020-21 but says the pandemic-related risks could hurt the recovery. The World Bank forecast puts growth at 0.5pc and sees the recovery staying restrained, averaging 1.3pc over the next two fiscal years. The real issue here is: will the actual rate of recovery be faster than the population growth? On the other hand, the World Bank sees the global economy expanding 4pc in 2021.

Despite the fiscal and monetary stimulus, the net bank lending to the private sector plunged 88pc in the first five months of the current fiscal year to a mere Rs10.3bn against Rs88.1bn in the same period of the previous year.

Similarly, the number of active borrowers at the household level, according to the Pakistan Microfinance Network, has dropped to 6.85m in September 2020 from 7.1m in March 2020. While looking forward to a broad-based recovery in 2021, the government plans to extend its cash assistance programme to 7m households from 4.5m earlier. The prime minister has also announced his two resolutions for 2021. One, universal health coverage to all our citizens. Two, the launch of his most ambitious nationwide ‘Koi Bhuka Na Soyay’ project. But humans are political animals whose hunger for genuine democracy cannot be ignored.

Published in Dawn, The Business and Finance Weekly, January 11th, 2021

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