Not many political parties, across the globe, take the risk of losing their voter base for the sake of unpopular decision making. Pakistan’s economy is currently under long-delayed chemotherapy, that has its consequences. Most of the governments used to avoid change and structural reforms because they are painful, they take a long time, and they are resisted by vested interests. However, the current PTI government dared to take urgent policy actions on the economic front.
Situation before General Elections 2018
Let us go back in time, the state of affairs before PTI came into power:
Exports were declining and imports were on the rise. The external account balance was negative. Pakistan’s economy was running on the imports-based consumption model. Domestic and exports-oriented businesses were marginalized. Foreign reserves were depleted because of higher outflows than the inflows. National saving and tax to GDP ratio were quite low.
The Pakistani rupee was maintained and controlled artificially by keeping it overvalued, through loans. Debt servicing of these loans was piling up. This situation was equivalent to subsidizing the imports for the elite / upper class, along with destroying the local industry. This fixed exchange rate regime was one of the main causes of the widening current account deficit.
Consumption-driven boom resulted in the decomposition of real growth and productivity. The country’s twin deficits were at a peak. Hence, the macroeconomic imbalances were leading to a situation of possible country’s default.
Reforms initiated by PTI government and their Outcomes
The finance and economic team of PTI government have the courage to address the long-awaited reforms. Following policy decisions have been taken by Imran Khan-led government for the economic revival:
Shift in Exchange Rate Policy
Pakistani Rupee is brought to its real value through currency depreciation. The exchange rate has been allowed to adjust, rather than keeping it stagnant artificially. This transition from a fixed-exchange-rate to a market-based exchange rate system helped in lowering the current account deficit.
Real Growth and Productivity
It is argued that policy measures taken by current government are at the cost of reduction in growth and severe contraction of national economy. The reality is, however, the opposite. Ever since the reforms have been implemented by PTI government, the export volumes have begun to grow. The high export volumes mean more production and real growth, that derives into additional jobs and employment opportunities. Though, the significant growth in export volumes did not translate into value terms because of softening global unit prices. Furthermore, luxury import items are being limited to lower the import bill. The deceleration of GDP growth rate and domestic demand compression is because of monetary tightening and planned fiscal consolidation. Nevertheless, the country’s economic growth is expected to recover from the fiscal year 2021-22 onwards.
Widening of tax base, improving tax compliance, and documentation drive have been initiated to increase the revenue collection. War against tax evasion and documentation of economy by bringing the people into tax net are the core areas of PTI’s manifesto.
A series of incentives and facilitation provided to the business community through export development package, export refinancing scheme, subsidy to industries on electricity and gas, long-term trade financing, etc.
The fiscal measures, upward adjustments in overdue electricity and gas rates, and the transition to a market-driven flexible exchange rate are the core causes of rise in inflation. The increase in utility prices was necessary to bring down the budget deficit.
For keeping the inflation in control, PTI government implemented various measures including an increase in policy rate, monetary tightening adjustments, austerity drive, subsidy for low-end electricity and gas consumers, and zero borrowings by Govt from the State Bank of Pakistan.
Relief measures by the current government for underprivileged citizens include Sehat Insaf Cards (free medical facility), Panahgah (shelter homes), Ehsaas Program, Roti Tandoors, Pakistan Bait-ul-Mal programs, etc. Vulnerable segments of the society are protected by PTI Govt from the sore consequences of unavoidable fiscal consolidation.
New employment opportunities are on-the-way through commencement of Kamyab Jawan Program, Youth Digital Skill Development, Naya Pakistan Housing Program, Tourism sector development, e-Rozgaar, National Agriculture Emergency Plan, Clean Green Pakistan Movement, and 10 Billion Tree Tsunami.
Prime Minister Imran Khan has proven himself brave enough to take the above-mentioned bold decisions for the stabilization of economy.
All in all
35% reduction in trade deficit, 64% drop in current account deficit, 16% increase in tax collection, 36% decline in fiscal deficit, and 137% increase in foreign investment recorded for the period of July–September 2019 as compared to same period of last year.
And most importantly, Pakistan has improved by 28 places on World Bank’s Ease of Doing Business ranking 2020 as compared to last year (from 136 to 108). This is an unprecedented jump as the country has been ranked 6th among the top ten economies that improved the most, this year.
These macroeconomic numbers indicate a positive outlook of Pakistan’s economy. Hence, the journey towards sustainable economic growth has just started.