Economic Stabilization vs Public Relief
Economic Stabilization vs Public Relief: The government keeps praising itself for stabilizing the economy over the past year, but the people are still struggling and don’t know whether to laugh or cry at their ongoing economic hardship. Have living standards improved? Has unemployment gone down? Has poverty been reduced? Have real wages gone up? Are small farmers earning more? The government says that these improvements will come, but they first had to fix the big economic problems they inherited. They believe that since they have done this, they deserve credit: inflation is now below 3%, compared to nearly 30% just two years ago. The country’s balance of payments problem is now better; the risk of default that was a concern in July 2023 has lessened; and tax collection is improving.
However, creditors, banks, and international agencies mostly praise the success of stabilizing the economy. We owe them a massive $120 billion (one-third of our GDP) and almost $20 billion (about two-thirds of our export earnings) every year for interest and debt payments. Many of these creditors have given us more loans, like the IMF, to ensure we stay afloat and can pay our debts.
The people, on the other hand, will only applaud when they see lower living costs, more jobs for young people, and real improvements in public services like education, healthcare, and roads, which have worsened over time. Achieving these goals requires more investment, both from the private sector and the government.
Sadly, the amount of total investment, as a percentage of GDP, has actually gone down to less than 15%, while the economy needs at least double this amount for sustainable growth that can reduce poverty and unemployment, especially with the current population growth.
Public Sector Investment Crisis
Public sector development funding has worsened: it has dropped to nearly 2% at the federal level and about 3.5% of GDP when including the provinces, far below the 7-8% needed for proper growth. As a result, public sector infrastructure is falling apart, as a recent IMF report shows. The government’s growth strategy, laid out in the Uraan Pakistan plan, focuses on five key areas: exports, e-Pakistan (ICT), environment, energy, and infrastructure, and equity and empowerment, driven mainly by the private sector. While these goals are valid, the strategy is more of a vision for how the economy should grow sustainably.
Implementing the Development Plan
The real challenge is in putting this plan into action with proper policy reforms and creating the necessary infrastructure to attract private investment and boost productivity. The recently approved 13th Five-Year Development Plan (2024-29) can provide valuable guidance, especially for public investment programs. If this plan is carried out efficiently, especially with coordination from the provinces, it might help improve the situation.
The finance minister has played a key role in stabilizing the economy and is focused on following through with the IMF program. However, he needs to remember that stabilizing the economy is the easier first step in any IMF plan.
The IMF will remind him of this after reviewing the last three programs. The real challenge will be in making the promised reforms happen, which is difficult because the economy and institutions are flexible and the ruling elites often avoid paying their fair share of taxes. The real work of implementing these reforms has just begun.
Published in Dawn, 17th March 2025
