Strange as it may sound, the government refuses to budge on some of the basic things that may not carry a very high aggregate monetary value, but tend to be very dear to a common man’s heart. It is a difficult social existence where state support on essentials like education and health is virtually non-existent, availability of general utilities grossly irregular, monthly kitchen’s budget hard to balance, living on the street increasingly dangerous, rule of law absent and justice hard to come by, sometimes the simple pleasures of life like chatting on a mobile phone with a friend or sipping an extra cup of tea can carry surprisingly high dearness values.
Thanks to this new budget these small pleasures may no longer be in the reach of an average low income worker. While the perception on the budget worsens, perceiving it as being hard on the poor, unfair to the existing taxpayers and mainly an ambitious accountancy exercise to facilitate upcoming loan applications, the uncertainty also grows over the ability of the new government to unleash a sound governmental plan for Pakistan’s economic revival.
Milton Friedman often used to remark that economic slides also represent economic opportunities. His ‘guitar string’ theory stated that if a guitar string for some reason is pulled down, it bounces right back when released. However, this comes with a word of caution. According to him, if the new person with the new responsibility of releasing it becomes the victim of uncertainty, then the string runs the risk of staying down and snapping. High uncertainty historically coincides with periods of lower growth and since policymakers in such situations are invariably confronted with intrinsic uncertainties of a low business cycle, it is all the more important for them to implement bold and timely decisions.
One such glaring uncertainty remains on the new government’s outlook on the total national debt. We have seen a lot of unnecessary bravado on staring the IMF in the eyes; whereas, one knows that for the moment we have little option but to seek respite from the IMF. So why the high drama that not only misleads the public, but also makes amicable negotiations so much more difficult to conclude.
What instead is needed is a medium and long term debt reduction strategy, since debt servicing stands today as the country’s largest head of expenditure. On the eve of the financial crisis, Spain’s net debt was a little more than 25 percent of its economic output. The ratio of net debt to gross domestic product (GDP) in Ireland hovered around 11 percent at the time. Once in a slide, it did not take very long for these ratios to escalate. Food for thought for us: if countries with debt levels of considerably less than 50 percent of GDP stand so devastated in today’s global environment, how vulnerable are we with our debt burden already reaching the 64 percent of GDP mark?
The taming of debt strategy needs to be twofold. First, of course, by prudent spending and reducing the fiscal deficit over time - Greek economy with a fiscal deficit of 8 percent is on the verge of collapse so naturally a fiscal deficit of nearly 9 percent or more should be a cause of concern for us?
We can learn from India on this front on how in a renewed drive it is shaming both private and public sector tax dodgers to pay up their dues in order to reduce the burden on its financial institutions and ultimately on the national exchequer itself. And second, by spurring growth to reduce the mere fraction of the debt to GDP ratio. The challenge here then lies in tackling inequality and boosting growth at the same time. This is where this government will need to be innovative.
Pakistan has pretty much lost its ability to raise money in financial markets. As the country struggles with a rising debt, savings being at an all-time low, reduction in interest rates not doing much to increase investment and Pak Rupee under pressure, the obvious route seems to be to cut public spending. However, the trouble is that in the midst of severe downturns cutting productive public spending only makes economic performance worse, thus adding to the debt burden.
The priority should be to attack inequality with more targeted and progressive social spending. In emerging economies, especially in Asia, this means reducing expensive universal subsidies for energy with tailored social safety nets. It means wider use of conditional cash transfers and, more importantly, tying social assistance to individuals’ investment in skills and education. The need is to bring about a shift in government spending from basic transfers to education and from older and richer people to younger and poorer ones.
Finally, to the hype of the much awaited upcoming trip of the Prime Minister to China, which one is hoping will pave the way for a truly meaningful economic cooperation between the two old friends. With the endeavour being led personally by a Prime Minister, who himself understands the dynamics of business and of sustainable economic linkages, the hopes naturally are high. A word of caution though, that please do not land up in China without doing a proper homework on how to form long-term economic partnerships in China and without working out beforehand the areas to focus on.
As a part of the experts team to establish the Boao Forum for Asia (BFA) - Asia’s answer to the World Economic Forum, Davos - one thing we learned quickly was that Chinese like to start small and then build on a platform gradually. (“Journey of a thousand miles starts with a single step” - Confucius.)
After signing of the economic liberalisation agreement with China, it took India more than three years to generate additional trade revenues of $3 billion; whereas, in the last three years alone the growth in trade and finance between the two countries is expected to exceed $30 billion. Further, the key is to work with Chinese preferences and within those find the mutual win-win for both sides.
Lastly, it will be important to be conscious of the priorities and preferences of the new Chinese leadership. The leadership transition in China is once every 10 years and every new leadership makes it a point to come across as being visibly different than its predecessors. Dealing with them based merely on the data of the last 10 years will be a mistake.

The writer is an entrepreneur and economic analyst.